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AQA AS Business
UNIT 1REVISIONWORKSHOP
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TodaySession Topic
1 A Viable Business Idea
2 Crunching the Numbers
Break3 Financing the Start-up
4 Understanding the Market
Lunch (back for 2.00 p.m.)
Quick quiz
5 Why Start-ups Fail
6 Evaluating the Start-up
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Session 1
A ViableBusiness Idea
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Some ImportantConcepts
ENTERPRISE
RISK
RETURNOPPORTU
NITY
COST
Can you define
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Have a Go!
One sentence for
each
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More on Risk
Imagine youdecide to investyour life savings
of 30,000 insetting up a new
Subwayfranchise outlet
List 3 risks you are
taking
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Over to You!
M
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More onOpportunity Cost
Whenever adecision is made in
business , there isalways analternative that
was not chosenThis alternative iscalled the
W
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W y t s simportant
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Over to You!
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Greatbusinesses usuallystart with
a goodidea
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No point creating a
product or service unlesspeople want it
Found a
gap in theMarket?
But isthere a
market inthe Gap?
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Assessing a NewBusiness Idea
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Rapstrap Now
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Session 2
Crunching theNumbers
t t
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at ou ee toCalculate
Revenues (sales)
Costs fixed and variable
Profit Contribution & Break-even
Cash flow forecasts
Market share, size & growth(later)
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Classifying Costs
Variable costs Costs which change as
output varies
Lower risk for a start-up:
no sales = no variablecosts
Fixed costs Costs which do not
change when outputvaries
Fixed costs increase therisk of a start-up
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Fixed or Variable?
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Fixed or Variable?
C t P t
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Ca cu at ng Pro tor Loss
PROFIT =
TOTAL SALESless
TOTAL COSTS
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An Example
Sales Costs Profit or Loss?
100,000 75,000 25,000(profit)
100,000 125,000 25,000 (loss)
Total sales > total costsTotal costs > total salesTotal sales = total costs
= Profit= Loss= Break-even
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Your Turn!
C t P t
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Ca cu at ng Pro tor Loss
10,000
6,5003,500
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Contribution
Contribution looks at the profit madeon individual products
It is used in calculating how many
items need to be sold to cover all thebusiness' total costs (variable + fixed)
Contribution is the difference
between sales and variable costs
Contr t on
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Contr ut on -Formulas
Contribution = total sales lesstotal variable costs
Contribution per unit = sellingprice per unit less variable costs
per unit
Total contribution can also becalculated as:
Contribution per unit x number
of units sold
Contr ut on Have
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Contr ut on Havea Go!
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Contribution
4
8,000
11,0001,250
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Breakeven chart
Sales
and
costs
(000)
Units of Output(000)
10
0
30
20
50
40
70
60
90
80
100
1 2 3 4 5 6 7 8 9 10
Fixed costs
Variable costs
Total costs
Total sales
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Higher or lower?
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Higher or lower?
Cas ow orecast
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Cas ow orecast -exampleJan Feb Mar Total
CASH INFLOWS
Investment 10,000 10,000
Sales 2,500 10,000 15,000 27,500
Total inflows 12,500 10,000 15,000 37,500
CASH OUTFLOWS
Raw materials 4,000 5,000 5,000 14,000
Wages & salaries 3,500 4,000 4,000 11,500
Marketing 2,500 1,000 2,000 5,500
Set-up costs 3,000 1,000 0 4,000
Other costs 2,000 1,000 1,000 4,000
Total outflows 15,000 12,000 12,000 39,000
NET CASH FLOW -2,500 -2,000 3,000 -1,500
Opening balance 0 -2,500 -4,500
Closing balance -2,500 -4,500 -1,500
Forecast is normally
produced by month
Net cash flow is the
difference each month
between cash inflows and
cash outflows
Opening balance is the
amount the business starts
with each month
Closing balance = openingbalance + net cash flow
Negative closing balance
suggests business needs
bank overdraft or additional
financing
Complete the missing
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Complete the missingnumbers
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How did you get on?
30
6
-5
1
1
8
43
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Session 3
Financing theStart-up
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Which of these is a
short-term sourceof finance?
A
Q
1
B
C
D
Bank
overdraft
Bank
loan
Share
capital
Fixed
assets
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A bank loan will NOTusually involve whichof the following?
A
Q
2
B
C
D
Repayments of the
loan overits term
Interest onthe
outstanding amount
Paymentofdividendsout ofprofits
Securityprovidedto thebank
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The typical investmentby a business angel
into a startup is...
A
Q
3
B
C
D
5k to
10k
500k
to3.5m
Anythin
g above1m
10k
to750k
d fi
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A startup needs financeto buy fixed assets such
as computers. What isthis known as?
A
Q
4
B
C
D
Capital
expenditure
Workin
gcapitalRevenue
expenditure
Start-
uplosses
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A startup will need tofinance...
A
Q
5
B
C
D
Cash
sales tocustomers
Dividends paid
to thebankInterest
on cashheld atthe bank
Pre-
tradinglosses
Key Issues for Start up
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Key Issues for Start-upFinance
How much? Enough v not too
much
Safety buffer
When? All at once
Drip feed / asneeded
Challenges Keeping control
Staying afloat
Finance neededfor
Business Set-
upDay-to-daytrading
Growth
Main sources of start
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Main sources of start-up finance
InternalSources
ExternalSources
Founder finance(personal sources
of theentrepreneur)
Retained profits
Credit cards
Bank loan
Bank overdraft
Friends & family
Business angelsLoans & grants
+ Dont forget
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+ Don t forgetSweat
Start-upentrepreneurs usually savecash andcosts by
working longhours for
nothing Choosing suitable
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Choosing suitablefinanceRecommend two sources of finance foreach business
Be prepared tojustify your choices
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Session 4
Understandingthe Market
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Some key terms
DemandMarketshare
Elasticityof demand
Nichesegment
Write a short definition
for each
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Types of market
A market isanywhere
where
buyers andsellers come
together to
transact witheach other
Localmarkets
National
markets
Physicalmarkets
Electronicmarkets
Factors that affect
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Factors that affectdemand
Factors t at a ect
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Factors t at a ectdemand
Prices Incomes Tastes & fashions Competitor actions Social & demographic
Seasonal Government action
Market
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Marketsegmentation
Segment
B
SegmentC
SegmentD
SegmentA
Attractions of niche for
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Attractions of niche fora startup
Smaller & fewer bigcompetitors
Chance to add value = better
profit margin
Easier to reach customers
Often higher growth of market
Analysing the
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Analysing themarket
Market size (volume and
value) Market growth (percentage
growth)
Market share (percentage ofthe market owned by each
product or competitor)
There are three calculations you needto be able to complete in order toanalyse market data in Unit 1
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Have a go!Dannii & Cheryl are
launching a new fitnessclub in Chelsea. In thefirst year, they expect tosell 500 memberships at2,000 each. Next year,the local luxury fitnessmarket is expected to
grow to 2,500memberships (this year 2,250)
Evaluating the market
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Evaluating the marketopportunity
Watch thevideo andthen plan
youranswer tothe two
questions
i
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Session 5
Why Start-upsFail
Wh t ll
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What well cover
Motives for starting abusiness
Aims and objectives ofstart-ups
Business planning What can go wrong
O t !
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Over to you!
Motives for being an
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Motives for being anentrepreneur
Financial Capital gains
Making a living
Personal Proving people wrong
Gaining control
Building something Social
Giving something back
Different Types of Start-
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Different Types of Startup
B i l i
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Business planning
Two main purposes:
A detailed plan for success
A tool to raise finance
So what can go
wrong with abusiness plan?
O t !
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Over to you!
W y Bus ness P ans
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W y Bus ness P ansgo wrong
No market in the gap Poor market research & unrealistic plan Competitor response
Good idea, poor execution Wrong people; poor management
Growth is too quick (overtrading) or too slow
Failure to manage cash flow
External shocks Economic change (credit crunch, oil prices)
Legal & social change
Building a good example
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Building a good exampleanswer
SilverjetFounded: 2006Product: Low-
cost, executiveflights to NewYork & Dubai
Price from999
Watch the video - then plan
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Watch the video then planan answer
S i 6
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Session 6
Evaluating theStart-up
utt ng t a
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utt ng t atogether
A tale of two start-ups Which would you invest in?
Which one succeeded? Which one failed?
Top tips for Unit 1evaluation
a e o wo tart-
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a e o wo tartups
Here are two reali-lifestart-up stories
Imagine you are apotential investor
What would you want to
know?
k
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Mucky
Chips
ItsAWrap
What information would beuseful to help you decide
whether to invest?
Mucky Chips Introduction
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Mucky Chips - Introduction
A new business forpotato farmer BobMucky
His previous business
went bankrupt and hisexisting business isperforming poorly -supplying potatoes tosupermarkets
The plan - use their ownpotatoes to make hand-
fried potato chips
Mucky Chips The Market
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Mucky Chips The Market
Market size - 4bn; 10billion packets peryear
Dominated by Pepsico(Walkers) who have a50% market share
Many other small
hand-fried chipmakers
Investment needed -
1m
Mucky Chips The plan
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Mucky Chips The plan
Small batch production usinga own secret, refinedtraditional recipe
Sell direct to independentretailers (e.g. local delis)
Packaging - transparentpackets so customers can seewhat is inside
Will start small and testsamples with customersbefore investing in full-scaleproduction facilities
Existing farm staff to be
ItsaWrap Introduction
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ItsaWrap - Introduction
The ultimate weddingservice
Idea of fashion expert SuziBianchi who has obtained
backing from a variety ofbusiness angels
Product - manage wedding
gift lists on behalf of couplesFocus on high standards ofcustomer service
ItsaWrap The Market
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ItsaWrap The Market
Market size 200m andgrowing fast
But number of weddingsin decline
Main competitors aremass marketdepartment stores e.g.
John Lewis, M&S
ItsaWrap The Plan
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ItsaWrap The Plan
Strong cash flows weddingguests pay in advance for theirgifts
Personal selling via high streetshowrooms full of stock socustomers can browse potentialgifts
Target customers 30+professionals looking for specialwedding gifts
Expect to manage 2,000wedding lists p.a - 3,000 each
M k It AW
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Mucky
Chips
ItsAWrap
Which one do you want toinvest in?
M k It AW
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Mucky
Chips
ItsAWrap
Which one succeededWhich one failed?
T ll W it
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Tyrrells Wrapit
AQA AS Business
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Q
UNIT 1REVISIONWORKSHOP