1. www.tutor2u.net AQA AS Business UNIT 1 REVISION WORKSHOP

2. Today SessionTopic 1A Viable Business Idea 2Crunching the Numbers Break 3Financing the Start-up 4Understanding the Market Lunch (back for 2.00 p.m.) Quick quiz 5Why Start-ups Fail 6Evaluating the Start-up

3. www.tutor2u.net Session 1 A Viable Business Idea

4. Some Important Concepts ENTERPRISERISK RETURN OPPORTUNITY COST Can you define them?

5. Have a Go! One sentence for each

6. More on Risk Imagine you decide to invest your life savings of £30,000 in setting up a new Subway franchise outlet List 3 risks you are taking

7. Over to You!

8. More on Opportunity Cost Whenever a decision is made in business, there is always an alternative that was not chosen This alternative is called the opportunity cost

9. Why this is important

10. Over to You!

11. Great businesses usually start with a good idea

12. No point creating a product or service unless people want it Found a gap in the Market? But is there a market in the Gap?

13. Assessing a New Business Idea

14. Rapstrap Now

15. www.tutor2u.net Session 2 Crunching the Numbers

16. What You Need to Calculate Revenues (sales) Costs – fixed and variable Profit Contribution & Break-even Cash flow forecasts Market share, size & growth (later)

17. Classifying Costs Variable costs – Costs which change as output varies – Lower risk for a start-up: no sales = no variable costs Fixed costs – Costs which do not change when output varies – Fixed costs increase the risk of a start-up

18. Fixed or Variable?

20. Calculating Profit or Loss PROFIT = TOTAL SALES less TOTAL COSTS

21. An Example SalesCostsProfit or Loss? £100,000£75,000£25,000 (profit) £100,000£125,000£25,000 (loss) Total sales > total costs Total costs > total sales Total sales = total costs = Profit = Loss = Break-even

22. Your Turn!

23. Calculating Profit or Loss £10,000 £6,500 £3,500

24. Contribution Contribution looks at the profit made on individual products It is used in calculating how many items need to be sold to cover all the business' total costs (variable + fixed) Contribution is the difference between sales and variable costs

25. Contribution - Formulas Contribution = total sales less total variable costs Contribution per unit = selling price per unit less variable costs per unit Total contribution can also be calculated as: Contribution per unit x number of units sold Profit = Contribution less Fixed Costs

26. Contribution – Have a Go!

27. Contribution 4 8,000 11,000 1,250

28. Breakeven chart Sales and costs (£’000) Units of Output (‘000) 10 0 30 20 50 40 70 60 90 80 100 123 4 5678910 Fixed costs Variable costs Total costs Total sales

29. Higher or lower?

31. Cash flow forecast - example JanFebMarTotal CASH INFLOWS Investment10,000 Sales2,50010,00015,00027,500 Total inflows12,50010,00015,00037,500 CASH OUTFLOWS Raw materials4,0005,000 14,000 Wages & salaries3,5004,000 11,500 Marketing2,5001,0002,0005,500 Set-up costs3,0001,00004,000 Other costs2,0001,000 4,000 Total outflows15,00012,000 39,000 NET CASH FLOW-2,500-2,0003,000-1,500 Opening balance0-2,500-4,500 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 = opening balance + net cash flow Negative closing balance suggests business needs bank overdraft or additional financing Closing balance = opening balance + net cash flow Negative closing balance suggests business needs bank overdraft or additional financing

32. Complete the missing numbers

33. How did you get on? 30 6 -5 1 1 8 43

34. www.tutor2u.net Session 3 Financing the Start-up

35. Which of these is a short- term source of finance? A Q1 B C D Bank overdraft Bank loan Share capital Fixed assets

36. A bank loan will NOT usually involve which of the following? A Q2 B C D Repayments of the loan over its term Interest on the outstanding amount Payment of dividends out of profits Security provided to the bank

37. The typical investment by a business angel into a startup is... A Q3 B C D £5k to £10k £500k to £3.5m Anything above £1m £10k to £750k

38. A startup needs finance to buy fixed assets such as computers. What is this known as? A Q4 B C D Capital expenditure Working capital Revenue expenditure Start-up losses

39. A startup will need to finance... A Q5 B C D Cash sales to customers Dividends paid to the bank Interest on cash held at the bank Pre-trading losses

40. Key Issues for Start-up Finance How much? – Enough v not too much – Safety buffer When? – All at once – Drip feed / as needed Challenges – Keeping control – Staying afloat Finance needed for… Business Set-upDay-to-day tradingGrowth

41. Main sources of start-up finance Internal SourcesExternal Sources Founder finance (personal sources of the entrepreneur) Retained profits Credit cards Bank loan Bank overdraft Friends & family Business angels Loans & grants

42. + Don’t forget “Sweat” Start-up entrepreneurs usually save cash and costs by working long hours for nothing

43. Choosing suitable finance Recommend two sources of finance for each business Be prepared to justify your choices

44. www.tutor2u.net Session 4 Understanding the Market

45. Some key terms DemandMarket share Elasticity of demand Niche segment Write a short definition for each

46. Types of market A market is anywhere where buyers and sellers come together to transact with each other Local markets National markets Physical markets Electronic markets

47. Factors that affect demand

48. Prices Incomes Tastes & fashions Competitor actions Social & demographic Seasonal Government action

49. Market segmentation Segment B Segment C Segment D Segment A Segment A

50. Attractions of niche for a startup Smaller & fewer big competitors Chance to add value = better profit margin Easier to reach customers Often higher growth of market

51. Analysing the market Market size (volume and value) Market growth (percentage growth) Market share (percentage of the market owned by each product or competitor) There are three calculations you need to be able to complete in order to analyse market data in Unit 1

52. Have a go! Dannii & Cheryl are launching a new fitness club in Chelsea. In the first year, they expect to sell 500 memberships at £2,000 each. Next year, the local luxury fitness market is expected to grow to 2,500 memberships (this year – 2,250)

53. Evaluating the market opportunity Watch the video and then plan your answer to the two questions

54. www.tutor2u.net Session 5 Why Start-ups Fail

55. What we’ll cover Motives for starting a business Aims and objectives of start-ups Business planning What can go wrong

56. Over to you!

57. Motives for being an entrepreneur Financial – Capital gains – Making a living Personal – Proving people wrong – Gaining control – Building something Social – Giving something back

58. Different Types of Start-up Aims & Objectives Part-time businesses Social enterprises Lifestyle businesses Ambitious businesses

59. Business planning Two main purposes: A detailed plan for success A tool to raise finance So what can go wrong with a business plan?

60. Over to you!

61. Why Business Plans go 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

62. Building a good example answer Silverjet Founded: 2006 Product: Low-cost, executive flights to New York & Dubai Price – from £999

63. Watch the video - then plan an answer

64. www.tutor2u.net Session 6 Evaluating the Start-up

65. Putting it all together A tale of two start-ups Which would you invest in? Which one succeeded? Which one failed? Top tips for Unit 1 evaluation

66. A Tale of Two Start-ups Here are two reali-life start-up stories Imagine you are a potential investor What would you want to know?

67. Mucky ChipsItsAWrap What information would be useful to help you decide whether to invest?

68. Mucky Chips - Introduction A new business for potato farmer Bob Mucky His previous business went bankrupt and his existing business is performing poorly - supplying potatoes to supermarkets The plan - use their own potatoes to make hand-fried potato chips

69. Mucky Chips – The Market Market size - £4bn; 10 billion packets per year Dominated by Pepsico (Walkers) who have a 50% market share Many other small hand- fried chip makers Investment needed - £1m

70. Mucky Chips – The plan Small batch production using a own secret, refined traditional recipe Sell direct to independent retailers (e.g. local delis) Packaging - transparent packets so customers can see what is inside Will start small and test samples with customers before investing in full- scale production facilities Existing farm staff to be trained in all aspects of chip production

71. ItsaWrap - Introduction The ultimate wedding service Idea of fashion expert Suzi Bianchi who has obtained backing from a variety of business angels Product - manage wedding gift lists on behalf of couples Focus on high standards of customer service

72. ItsaWrap – The Market Market size £200m and growing fast But number of weddings in decline Main competitors are mass market department stores – e.g. John Lewis, M&S

73. ItsaWrap – The Plan Strong cash flows – wedding guests pay in advance for their gifts Personal selling via high street showrooms full of stock so customers can browse potential gifts Target customers – 30+ professionals looking for special wedding gifts Expect to manage 2,000 wedding lists p.a - £3,000 each

74. Mucky ChipsItsAWrap Which one do you want to invest in?

75. Mucky ChipsItsAWrap Which one succeeded Which one failed?

76. TyrrellsWrapit

77. www.tutor2u.net AQA AS Business UNIT 1 REVISION WORKSHOP