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Accounting Case Analysis
Spike’s Indoor Beach Volleyball and Rock Climbing Inc
The case highlights the journey of Spike’s indoor beach volleyball and rock climbing Inc. towards the attainment of great success. The business is located business in Canada, Ontario, and London. The founder and Chief Executive Officer, Earl Misener was undertaking a consideration to expand the business. This was due to the fact that the current size of the firm had minimal provisions for the kind of business with minimal that the requirement. Some of the facilities provided by the business included pool table, rock wall, volleyball courts, lounge area, as well as outdoor patio. The imagination of Misener was that outdoor beach and rooftop patio were important components of a slow summer. Canadians had had an encounter with Volleyball in 1900. In particular, an association dealing with volleyball had been formed in Ontario (OVA). The association had been formed in 1929 as a non-profit organization with the main focus on the provision of leadership as well as ensuring that Ontarians had recorded growth in volleyball participation. The funding of Ova programs was done through the Ontario Ministry of Health Promotion. The first time beach volleyball appeared in Olympics was in 1996 when it gained immense popularity. Many people developed attention towards the game as an important activity.
The background of Earl Misener is that he graduated from Brock University. He later worked as a Chartered Accountant before eventually venturing into business. This saw him become the owner and President of Spike’s. Initially, Misener had worked with Smith, Nixon & Co. LLP (Smith) as an accountant. The experience in consultancy was acquired by working with small businesses. Subsequently, the ideas for own business came about from the experience gained. Before he quit from the accounting consultancy firm, Misener was offered an opportunity to become a partner. Nevertheless, he opted to travel the road towards entrepreneurship. During his leisure time, Misener had loved playing beach volleyball. Consequently, he decided to undertake a facility providing beach volleyball, but with better services. However, he changed the location of the facility to be in London, Ontario which was 200 kilometers in the southeast of Toronto.
The choice of London, Ontario as the location for Spike’s Indoor Volleyball and Rock Climbing was motivated by the fact that city was the largest in Canada. The population was in excess of 330,000 in the year 1996 alone. The location of the city was ideal for the kind of business undertaken by the facility. The city had strong focus on important issues such as health care, education, manufacturing and tourism. Indeed, the city was home to the University of Western Ontario, as well as Fanshawe College. The two institutions were a source of an extensive increase in the city’s population. The activity of the city was also associated with the craze for nightlife among students. Similarly, there was an extensive focus on upscale restaurants, John Labatt Centre and the existence of Grand Theatre. Furthermore, the city was home to a sports arena with a capacity of 11000. There were over 16 secondary schools in the city and each had a gym.
The eventual realization of a location for the company was a process undertaken by the founder painstakingly. The founder had to visit numerous locations before deciding that a rental building in Weston Road was the rightful location for the facility. The first day of operation for the facility was in March 1997 whereby three indoor courts to be used for volleyball were erected. In the first few months, the business was tough for the entrepreneur. There were only eight teams registered in the leagues. Surprisingly, half of the registered teams in the league were Misener’s family and friends. Although there had been several teams involved in the game of volleyball at the time, it proved difficult for such teams to switch to the beach volleyball advocated by Misener. Additionally, the building in which the facility was housed became a center of controversy and conflict. The neighbors had opposed the location of the facility in the building. After suffering serious zoning issues, the company eventually managed to increase the number of teams to over 130 for the whole season. One year had three seasons. Additionally, the company added rock climbing to the list of recreational activities in 2003. Furthermore, the company expanded the Menu to drinks such as alcoholic drinks and quesadillas alongside the initial menu of pop and potato chips.
Analysis of the Expansion Measures for the Company
In the mindset of seeking for an expansion of the facility, Misener undertook to cover all the various aspects of the business towards an expansionary measure. The desire by the owner to expand the business to such a level that it would continuously make increased profit levels would be assessed from different points. This would particularly be done through such measures as the analysis of the profitability potential of the various business opportunities undertaken by the business. It would also be imperative to analyze the viability of the various investments undertaken by the business towards the increase of its revenue. For instance, the consistent upgrades undertaken on the facility to provide extensive services would ultimately have a bearing on the nature of the profitability of the business. Provision of licensed rooftop patio and outdoor beach volleyball was an important undertaking that could lead to high level of profitability of the company. The numerous activities undertaken by the owner towards the intensification of the company’s profits is an important measure through which risks can be assessed. The continuous profitability of the company would ultimately depend on the level risk assessment undertaken by the owner.
The questioning by the owner on the effectiveness of the various measures undertaken towards the profitability of the business would be considered on the basis of various aspects. The consideration of the investment in licensed rooftop patio and outdoor beach would be undertaken through an analysis of the different outcomes and scenarios. The consideration of the various scenarios for the evaluation of an expansion in the licensed rooftop patio and outdoor beach would be effected through a careful consideration of the cash flow streams obtained from the project. The first aspect of the consideration for an expansion on licensed rooftop patio and outdoor would be in terms of competition. From the current issues, it is evident that no direct competition for the indoor beach volleyball competition in London. The fact that Mineser had troubles locating an appropriate location would mean that a competition would find it tough to establish a competing business.
Competition is always a major reason for businesses to face challenges in growing their market share. Therefore, a possible competition would bring about a touch choice for the company towards the development of the appropriate mechanisms to create an environment of success and power. The most important aspect of the success of the licensed rooftop patio and outdoor beach volleyball would consider the specific attributes of the projects that would lead to increased risk levels. Each of the expansion avenues would cover the various attributes associated with respective business entities. For instance, it would be imperative to ensure that the capital outlay for the project was reasonable enough to warrant profitability. The for instance, the rooftop patio would have a capacity of 200 people. The outcome of this investment would be increased sales of liquor to $6000 per day. Similarly, food sales would total $1000 per day.
The projection of the weather outcomes revealed that the company would have 95 days of good weather during when the patio would be open. There would be an estimation of gross margins to 50 per cent in liquor sales. Additionally, food sales would have a 35 percent sales margin. There was also an analysis of the manner in which food and liquor would be maintained. There would be supply for a period of stock to be used in 5 days. Payments to suppliers would be made after 10 days. This is an important measure to ensure that the company did not pay its creditors before receiving cash from debtors. In terms of the various costs associated with running a licensed rooftop patio, consideration would be made on aspects such as the need for two servers each earning $8.50 per hour and a bartender earning $10 per hour. The cost would be incurred for an eight hour shift during the operating days. There would be a cost of maintenance and utilities in the kitchen totaling to $500 and $200 respectively for each month of operation.
The consideration as to whether an expansion for the company would lead to profitability would therefore be undertaken through the evaluation of the outcomes of events outside the projected. Indeed, a deviation from the projected outcomes would lead to a failure to achieve an objective. However, the consideration as to whether the deviation of the outcomes from the projections should not lead to massive losses to the extent that the company cannot operate effectively. For instance, it the sales projected from the sale of liquor and food were to fall below the target, the company should continue operating without closing shop. This is an important aspect of the expansion measures envisaged by the company.