Y12 Business Studies - Unit 1 Revision Workshop

8/9/2019 Y12 Business Studies - Unit 1 Revision Workshop

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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
http://news.bbc.co.uk/1/hi/england/7428738.stm


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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

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Y12 Business Studies - Unit 1 Revision Workshop

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