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Goldwater Lemonade
Operational Report
Matt Goldwater
September 2014
2
Table of Contents
Executive Summary
About Us
Meet the Owner
Ingredients
Operational Report Intro
Weather Forecast
Weather Related Price Point
Profit Melting Away
Accounting Method Flaws
New Accounting Method
Adjustments and Growth
Contact Us
04
05
05
06
07
08
09
10
12
13
14
16
3
List of Graphs and Tables
Graph - Daily Profit/Loss : Page 7,12
Graph - Potential Customers v.s. Temperature : Page 8
Graph - Cups Sold : Page 8
Table - Temperature Effect on Cups Sold : Page 9
Table - Adjusted Price Point for Temperature : Page 9,14
Graph - Spoilage v.s. Profit : Page 10
Graph - Daily Ice Spoilage : Page 11
Graph - Temperature Spoilage : Page 11
Graph - Total Expenses : Page 12
Graph - Cup Expense : Page 12
Graph - Total Expenses (Linear Line) : Page 13
4
Profit Driven by Weather
and Inventory Management
With the positive growth in sales and the
knowledge that we can adjust for any
previous dips in sales we determined that the
main reason for our variation in profit was
due to our expenses. Through an analysis of
our expenses we were able to determine two
major things in need of adjustment going
forward. First we noticed that our accounting
method we were using was giving the
appearance of unstable profits but in reality
our profits were more stable than initially
thought. Additionally through the analysis of
expenses we noticed that our spoilage of
inventory was too high severely effecting our
profit throughout the month.
For future
operational
practice, we hope
to take
advantage of the
knowledge
gained from this
report. As we
come to better
understand
weather patterns
and their affect on our price ceiling, as well
improve our inventory management system
we will reduce any additional costs and
maximize sales. Through these change in
operations and the future change in
accounting method we expect to stabilize
daily profit and increase our net profit.
Goldwater Lemonade
experienced an
extremely positive
month during their
first month of
operations. While
Goldwater Lemonade
nearly had a 900%
return on their initial
investment, there is always room to grow. Upon
further analysis it was discovered that daily profit
had some variation. Identifying the source of this
fluctuation was a primary goal for our
operational report.
In order to get a complete understanding for our
daily profit we decided to break it down and
individually analyze both our sales and
expenses. After further analysis it was
determined that our sales had a general growth
as we adjusted our recipe. The dips in sales
occurred when the customers negatively reacted
towards the changes made to the recipe.
Additionally sales were influenced to some
extent by the weather. We determined that
rather than weather directly correlating with
sales, weather influences our prices and If prices
were adjusted properly, decreases in sales were
minimized. Weather did place a ceiling on our
prices and that’s something we will have to
further explore in future months.
Goldwater Lemonade
Executive Summary
04
5
Meet The Owner
Matt Goldwater is a
senior accounting major
at Medaille College .
But don’t let that fool
you, he has real
experience beyond his
schooling. Matt was
involved with the
starting up of
Fernanand Hauling , a
shipping company
which is quickly
growing . Matt is also
the CFO of Commons
Café , a coffee shop on
a local college campus.
Additionally Matt has vast
customer service experience and
knowledge of the business world.
Both of which he is taking advantage of, as
Goldwater Lemonade is quickly off to a great
start. Matt is extremely passionate about
Goldwater Lemonade and is excited for what
the future holds.
Goldwater Lemonade opened its doors
September 1st 2014 but has been in the works
for many years. Serving only the freshest of
ingredients in each glass of lemonade and armed
with a secret recipe passed down through the
family, Goldwater Lemonade has quickly become
a fan favorite. The Stand was founded on a
childhood dream and a secret recipe passed
down through the family of founder/owner Matt
Goldwater.
Under the guidance of Matt, Goldwater Lemonade
feels confident in their ability to grow and expand
their reach of lemonade across the region, the
nation, and one day globally. We are looking to
expand our stands and would like to open up
franchise opportunities. Additionally Commons
Cafe a coffee shop in a local college will begin
carrying our lemonade at the start of next
semester. The future is looking very bright for
Goldwater Lemonade with the Stand’s growing
popularity, and expanding business opportunities.
Goldwater Lemonade
About Us
05
6
Our lemonade is made with only the freshest
of ingredients. Absolutely no pesticides or
chemicals have touched any of our
ingredients. All of our inventory is carefully
maintained in order to insure that only the
freshest of ingredients are in each glass of
lemonade.
Ever hear of the acronym K.I.S.S? While we’re
not calling anyone stupid, we adhere by the
saying. At Goldwater Lemonade we believe in not
complicating the perfect glass of lemonade. We
don’t add any extra additives or use complicated
formulas. We only use lemons, sugar, water, and
ice. With the perfect combination of ingredients
and our secret method of preparing the
lemonade passed down through the family, each
glass of lemonade is that perfect combination of
bitter sweet.
Goldwater Lemonade
Ingredients
06
7
At Goldwater Lemonade we view September’s
Octobers, and November’s Operational
Reports as especially important. We will use
these to help us gauge the market, perfect
our operations, and build our customer base
before closing our doors during our seasonal
break. Ultimately we hope to use this
information to improve our business and help
put together a strong operational and
marketing plan for our Grand Re-Opening in
April. In order to do so we will be analyzing
both internal and external factors. Both of
which are likely to have played a role in our
daily profit variation. Ultimately through this
report we expect to determine the cause of
this variation and be able to make the
necessary changes going forward to not only
decrease
the
variation in
daily profit
but grow
our profits
at a
sustainable
rate.
Goldwater Lemonade exceeded all of our goals for
a first month of operation. September produced
an extraordinary increase in profit of nearly 900%,
getting us off to an extremely fast and successful
start. While it is unlikely to duplicate that type of
increase in profit two months in a row, we are
extremely confident we can still see a substantial
growth in profit. It would be ignorant of us to
believe that everything we are doing is 100%
correct. After all, there is always room for
improvement. As seen with nearly all businesses,
the first month of operations produces an
inconsistent daily profit. This can be expected as
businesses are building a customer base and
trying to tweak their operations and recipes for
success. The main objective of this report is to
determine the causes of fluctuation in daily profit
as well as identify any additional improvements
Goldwater Lemonade should make in future
months of operation.
Goldwater Lemonade
Operational Report
07
PROFIT
8
The Effect of Weather on
Goldwater Lemonade
As you can see temperature has a very strong
correlation on the potential customers that
the lemonade stand has every day. While that
will effect the ceiling of how much revenue
with can bring in that day, we noticed that
overall it had very little influence in how many
cups of lemonade we sold.
While there is a slight downward trend seen
in the graph, there are too many outliers that
do not follow the trend to consider weather
as a direct reason for the success or failure
of a day at the lemonade stand. Rather it is
that ceiling that is imposed that influences
the number of potential customers we see
daily. What we see here though, is that a
potential customer does not equate to an
automatic sale. This means that there is an
additional factor that customers are
considering. Through further analysis we
determined this to be price point. Check out
the results of our analysis on price point.
As one might guess a Lemonade Stand is
relatively weather dependent. Ask yourself do
you want a nice cold glass of lemonade on a hot
day or a cold day? Well personally I might choose
a warm cup of coffee on a chilly day. What about
on a sunny day or a rainy day? Some might not
venture out into the rain for a tasty glass of
lemonade, while on a nice sunny day there are a
lot more people out and about. So naturally it
makes sense that our business is effected by
weather.
Goldwater Lemonade
Weather Forecast
08
9
Recommendations
Going
forward we
will have to
experiment
with finding
the perfect
price point
for different
ranges of
weather
and temperatures in order to maximize our
daily revenue. Rather than continuously
change prices each day we will have to
assign one price point for our lemonade.
Then based on the weather we could offer a
special promotional price so that we still
achieve the same price point but it doesnt
look like we are constantly altering our prices
to our customers.
Additionally we will need to determine once
our price point plan is in effect if on certain
days our cost of goods sold exceed our
revenue for a particular temperature. If this is
the case we will recommend that we close on
certain days we
close based on
those
temperatures.
In order to fully understand the effects of weather
and price point on cups sold and revenue, we
should do an analysis when other factors in our
control are held constant. For purposes of
examining this we chose only days that had the
same recipe. In the table below we see the
difference in cups sold with three days that have
nearly identical price points.
Each of these three days have different
temperatures and based on the table alone it
looks like temperature is the sole driving factor of
the variation in cups sold. However from what we
discovered in Did you Check the Weather
Forecast, we know otherwise. While examining
the weather and price points further we discover
that if prices were properly adjusted the number
of cups sold weren’t effected as much by the
temperature. This is illustrated by the table below.
Goldwater Lemonade
Price Pointing Weather
09
10
While it is difficult to see the correlation
because of the flatness of the red line
(spoilage) compared to the light blue line
(profit), if you carefully look at the slight rises
of the red line they nearly identically match
up with the drops in the light blue line. This is
a clear indicator that not only is ice spoilage
effecting our overall profit but it has a lot of
room to improve.
While Goldwater Lemonade had an extremely
good first month, I would be a poor businessmen
if I did not examine potential room for growth.
One of our largest weaknesses this past month
was our poor inventory management. Specifically
we struggled in the management of our ice
inventory. To some that might seem like an
insignificant cost because ice is relatively cheap.
However we noticed that over the first 30 days of
operation we had over $25 in ice spoilage.
Goldwater Lemonade
Profit Melting Away
10
11
In the above graph we see how our spoilage
compares to the temperature of the day that
the spoilage occurred on. From this we can
see that we did poor at managing our ice
inventory at nearly every temperature. We
can also see that the bars are more heavily
located to the right of the graph or at the
colder temperatures. At first thought one
might say it is because our stand is effected
by weather. Remember though, that we
determined weather does not play a major
role on our stand (see Did You Check the
Weather Forecast) but rather influences our
ceiling of how many people we can possibly
sell to that day. It is because of this we have
to watch the forecast before purchasing our
ice inventory for the day. If we become more
aware of our external factors we can
minimize the spoilage of our ice. Moving
forward: Purchase inventory smart!
When we take a closer look at our ice spoilage we
see that there is an extreme variance in day to
day spoilage. This provides a lot of insight for me.
First that while we did manage our inventory very
poorly some days and have a ton of spoilage,
there were other days that we had very little
spoilage and some days that we even had no
spoilage. That’s a positive. However no spoilage
could also mean we didn’t purchase enough ice
and sold out too early in the day, so that is
something we should pay closer attention to in
the second month. Additionally if you look at the
linear black line (which shows the pattern of our
data) we can see that our spoilage problem
during the month wasn’t getting better but
instead worse.
Goldwater Lemonade 11
How Do We Fix This
12
Cash Basis Accounting
Method
In more than one instance there were days
where the company incurred $0 in expenses
for our inventory of lemons, cups, and sugar.
Great right? Everyone loves zero dollars in
expenses! Our profits shoot up that day right?
Well what about the day when we have to buy
a lot of inventory because we are running low
or just want to stock up on cups because of a
really good price? During these days our
profit will and did plummet.
As seen extreme variation in expenses can
lead to extreme variation in profit. Lets be
honest that does not look like a successful
company! Even though we had a near 900%
increase in profit, it looks like we were
inconsistent and inconsistency is not a good
indicator of a successful company. Luckily
that’s not the case for Goldwater Lemonade.
We are very successful so far. However the
cash based accounting method is creating
too many false positives and false negatives
and making it nearly impossible to evaluate
the company’s success accurately.
During the first month of operations Goldwater
Lemonade practiced cash based accounting. An
accounting method which requires businesses to
record income as they receive cash from
customers and record expenses when they pay
cash. There are many disadvantages to using
this method. Among them is the fact that this
method makes it nearly impossible to get an
accurate financial picture of the business.
With the use of this method the way our
expenses are recorded will cause huge variation
in day to day expenses. This becomes even more
obvious when looking at individual expenses.
Goldwater Lemonade
Accounting Method Flaws
12
DAILY PROFIT
13
1. A better
picture of
financial
performance.
2. Tracking
Historical
Trends
3. Access to Credit
4. Meeting GAAP
5. Allows Financial Managers to Better use
Company Resources
Starting next month Goldwater Lemonade will
begin using the Accrual Basis Accounting Method.
This is a system in which revenue is recorded
when earned and expenses are recorded when
incurred. We expect this to create a more realistic
picture of the type of business we do at Goldwater
Lemonade.
We expect the biggest effect to occur on expenses
and day-to-day profit. This is because of how
expenses will be recorded. In the accrual basis
method, expenses are not recorded until the
expense is incurred, meaning that until we use an
inventory item that piece of inventory is not
expensed. We expect this to eliminate the
extreme highs and extreme lows from day-to-day.
Additionally this change will not effect the
appearance of our income. Due to the nature of
our business all of our revenue currently comes in
cash. Therefore the change in accounting method
will not effect our method of recording income.
In the future we should expect to see our
expenses be more similar to the black trend line
(rather than the red line representing this months
expenses) with a steady growth as we begin to
increase our sales of lemonade.
Goldwater Lemonade
New Accounting Method
13
Benefits of Accrual
Basis Accounting Method
14
Conclusion We were able to determine that weather
affected both sales and expenses. While
mother nature is completely out of our
control we found through further analysis that
there are some adjustments we can make in
order to be successful in every weather
condition. However it does require us to
monitor the weather. This will be our first
adjustment in operations, we will pay close
attention to the weather forecast as it
influences both sales and expenses.
In our analysis we noticed weather affected
sales as it caused us to sell less cups.
However when we adjusted the price per cup
of lemonade according to temperature by
lowering the price we noticed that while
charging less money we had higher revenue
due to the increase in cups sold.
We are not confident that our numbers this
month can give us an accurate price point for
each temperature due to lack of available
data. However, we are confident that by the
end of the next month of operation we can
have a much better idea on what prices we
should charge when adjusting for weather.
We would like to implement the price
variation through some sort of a discount.
Through an analysis of
operations during the
month of September
we were able to
determine a few key
changes and
adjustments that we
should make in order
to continue to be
successful and
increase our
profitability at
Goldwater Lemonade.
As we stated in our report we determined that
our profitability was affected by recipe (sales),
weather (sales, expenses), and inventory
management (expenses). We started with our
family recipe and adjusted it throughout the
month of September until we arrived at the
recipe which we are extremely confident in.
Goldwater Lemonade
Adjustment And Growth
14
15
Additionally
we will
make a
change in
our accounting method from using the cash
based method to using the accrual based
accounting method. We are confident in this
change as it will help us get a more accurate
picture of our financial performance.
We also discovered that weather influenced our
inventory management. Overall management of
our inventory especially our ice was poor. We
were able to attribute this to the effect of weather
on our sales.
When we
didn’t pay
close enough
attention to
the weather
forecast and
we suffered in
sales we used
less inventory
and we
usually had a large amount of inventory
remaining. Eventually some or most of that
remaining inventory was spoiled and lost, causing
us to purchase more inventory and increase our
expenses. We believe that while we can make an
immediate adjustment here, we will become most
efficient at managing our inventory once we have
determined the price point change due to
weather.
Finally as mentioned earlier, our weakest point of
inventory management was our ice. A large
amount of our spoilage and expenses were due to
our lack of management of ice. After performing a
cost analysis we determined that rather than
purchase the ice from
our current vendor, we
will purchase ice cube
trays and freeze our
own ice cubes. We
expect this to
significantly decrease
our expenses and
increase our profit.
Goldwater Lemonade 15
COMING SOON!
New Flavors of
Lemonade
Hot Drinks
Snacks
Possible New
Locations
Catering
Possibilities
16
Goldwater Lemonade 16
Phone: (716) 55L-EMON
Email: [email protected]
Twitter: @lemonsofgold
Website: mattslemonade.wordpress.com
Have a comment, concern, sug-
gestion, review or even just a
question? Feel free to contact us
at our personal number, email
us, or tweet us. We love to hear
from our guests and look forward
to hearing from all of you. Hours of Operation
(April- November)
Monday-Friday
7am – 6pm
Saturday/Sunday
9am – 4pm
