Using accounting concepts draft a letter for consulting ideas.
All video transcripts are included in blue. Name of company Under Wing Consulting Group.
Direction
For this assignment, you will turn in your Letter/Report to BluJay Aviation, Inc. Include your company name in the letter/report.
The letter/report should be submitted to BluJay Aviation, Inc., from your consulting business. Be sure to include a bill for your services. Make it appropriate for the amount of work. The letter/report should be approximately 2-4 pages, again editing and rewriting normally improves work. The format should be a typical business letter/report style.
Remember as a business consultant, your company needs to make recommendations for Episodes 6, 7, 8, and 9 and be backed up with data, making any reasonable assumptions your company deems necessary. Refer back to the instructions in Module 5.2 and grading rubric before submitting your letter/report.
Instructions
Ongoing throughout the second half of the course, you will be hired by BluJay to advise them on some current operating activity issues and potential investing activities for growth opportunities. Your letter/report will outline your analyses and recommendations. This activity will apply concepts and techniques learned in the course.
During each module, for the remaining of the course, it will be useful to continue to draft what you are going to put in the final letter/report to BluJay that is due in Module 9. You will find it very helpful to have a working draft as you progress through the course. Reminders will be provided along the way. Remember, the best writing is done, edited, and redone. There will be one episode for Modules 5, 6, 8, and 9 (BluJay Aviation Episodes 6-9).
EP 6
You have been hired by BluJay Aviation as a business consultant. BluJay Aviation, Inc., has been in business for three years. The business has been profitable enough that Wren no longer works for the airport. She is now both an owner and employee of BluJay Aviation. Brad is still at the FBO, but also does some work for BluJay.
An opportunity has arisen at the airport. The gift shop is available for lease. Wren and Brad have been thinking about taking over the operation of the shop in addition to running BluJay Aviation.
Financial statements for the most recent years of operation of the gift shop are supplied.
Come to a conclusion about what they should do and state the reason(s) for your decision. Draw up a rough draft of what you are going to put in the final letter/report to BluJay for Episode 6.
Gift shop at the airport with lots of T-shirts.
Introduction
It is now three years since the start of the business. The company has been profitable and successful. Wren is now working full-time for BluJay Aviation and is taking a salary. Brad is still at the FBO and flying for BluJay. They are now discussing a new opportunity for growth.
Wren: The airport manager has been talking to me about taking over the operating of this gift shop since I’m no longer working as her assistant.
Brad: What does she want us to do?
Wren: Take over the lease from the previous company.
Brad: There sure is a lot of stuff in this store, but I’m not sure we want to get into the retail business. I know nothing about buying and selling inventory.
Wren: The manager did say she would work with us on the lease arrangements.
Brad: What comes with the deal?
Wren: We would get everything in the store, mainly the fixtures, supplies, and inventory. We wouldn’t have to pay the previous company anything for the inventory because it is on credit and hasn’t been paid. We would have to pay the creditors.
Brad: You know, I think it’s time that we called in some help. Let’s see if we can find some business consultants who can sort this out. Since I’m working two places and you are handling most of the work for BluJay, an outside look at our situation would be good.
Wren: Not a bad idea. I have the most recent financial statements from the gift shop so I can provide them to the consultants.
Brad: Maybe we can also use them to look at some of our other operating activities and make a few suggestions there.
EP 8
BluJay Aviation has called on your business consulting company again for some advice. Brad has decided that they should extend the life of the aircraft from an original estimate of 15 years to 20 or 25 years. Three years have already been taken on the aircraft. He believes this will allow them to show a larger profit.
Directions
Make a recommendation to BluJay. What are the pros and cons of this alternative? In your recommendation to BluJay, be sure to state the implications of your decision on all of the financial statements, not just the income statement.
Draw up a rough draft of what you are going to put in the final letter/report to BluJay for Episode 8.
Scene Brad’s office at BluJay’s Office. Brad: You know, some of this accounting stuff is getting interesting. I’ve been reading a lot about depreciation. Wren: Well, that’s a good sign. Brad: I think we can improve our bottom line by changing the life of the aircraft. When we bought it three years ago, we decided to give it a life of 15 years, but that’s just an estimate. Wren: We did some research and based on the fact that it was a used aircraft and based on how long we thought it would be useful to our company. In my opinion, it was a good estimate. Brad: Yeah, but just by changing our minds and extending the life to 20 years, our profit will look better or we could even do 25 years. These planes are real workhorses and go on and on and on. Kind of like that bunny in the commercials. Wren: I’m not sure messing around with the financial statements and just changing numbers is going to do us any good. Brad: Come on, a little creative accounting never hurt anyone, right? Wren: Let’s run this one by the business consultants also. I’m starting to think doing the accounting is too much and we may need to get someone with more knowledge than I have. Maybe they could recommend someone.
EP 7
Your business consulting company has received a second request for advice from BluJay Aviation, Inc.
BluJay Aviation has allowed their clients to pay 30-60 days after services have been given. This too often causes their cash flow from operating activities to be negative, even though they are earning a profit. The economy has also made them nervous about collecting since a few businesses that use their services, especially the realtors, may not stay in business.
Choose two options they might try to improve their cash flow and also advise them about the valuation of their accounts receivable. Create a rough draft of what you are going to put in the final letter/report
Scene Wren and Brad discuss their cash position and customer collections at Eagle One’s FBO office. Brad: I just don’t understand why we’re always short of cash even though we generate a profit. I would really like the new business consultant group to explain that to me. Wren: Part of the problem is collecting the cash from our clients. Brad: I think our clients are steady and some have been with us since we started business and seem to be happy with our services. Wren: Up till now they have paid their bills, but often it is what I call “slow pay.” Usually late based on our policy of 30 days after we provide the service. Brad: I’m a bit worried about the realtors. Business is very slow and the housing market is still in the dumps around here. Wren: You know the marketplace a lot better than I do. Do you think some of them will not pay us for work we’ve already done? Brad: I certainly hope not, but maybe we should start thinking that’s possible. Wren: Any ideas about speeding up the payments? Or maybe we should change our billing policy. I really liked it when we were able to get them to pay ahead of time. Brad: Let’s call up our consultants and ask them to look into this too. Wren: Great idea. Did we find out what they’re charging? I hope it’s not an arm and a leg. If so, I’m giving them yours.
EP 9
Another growth opportunity has arisen for BluJay Aviation and the company has asked for your business consulting company’s advice.
A company giving scenic rides over the city in a helicopter has decided to close their business. The helicopter is for sale. Financing of this purchase would be either by borrowing or by obtaining new investors.
Your final letter/report from your consulting company to BluJay is due by the end of this module. It should include your advice on financing the helicopter. What are the advantages and disadvantages of each form of financing expansion? Be sure to determine the effect on the financial statements and various ratios. Recommend whether BluJay should expand, and if so, how the helicopter should be purchased.
Scene Outside looking at the helicopter. Introduction Brad is now licensed to fly helicopters and is anxious to put his new skill to work. The owners discuss another growth opportunity. Wren: What do you think about this? I know you were successful last month in getting certified to fly this helicopter. Brad: It’s a really nice helo, even though it’s used. It’ll carry three passengers as well as the pilot. Our city is just amazing from the air. Giving rides to locals and tourists would be great. We could also take better pictures for the realtors. Wren: The company that owns this is really underwater with debt and wants to unload it. We might be able to get it at a real bargain, sort of a “fire” sale. Brad: I have no idea as to how we could buy it. I know I’m not able to raise any more money, how about you? Wren: Getting our business up and running has me tapped out. Brad: Where do we go to get funds for a business? Will banks look at us as though we’re crazy if we approach them about expanding with helicopter service? Wren: Do you know any bankers? Any that use the FBO maybe? Brad: We could think about finding another investor and sharing some of the ownership. A few people I have contacts with have mentioned it, but who knows how serious they are when it comes right down to putting up the money. Wren: It might be hard to have a third or fourth owner. Brad: This is a nice ship. My friend, Rick, says we could probably get this Raven R44 for about $148,000, and the name fits right in with BluJay, don’t you think? I can see myself in it being a tour guide. Wren: Our consultants should be able to help us figure out if this is plausible and how to finance it. Let’s get their feedback about it first.