Applied BusinessUnit EightBusiness DevelopmentWorkbook``<br />Business Development<br />The Business Development plan gives students the opportunity to bring together all of the skills learned in previous units and apply them directly to the planning and development of a viable business opportunity. <br />To succeed in this unit students must be:<br /><ul><li>Realistic
A business idea that has a real chance of survival must be selected. It should be a small business developed to meet the needs of a particular market and you will need to provide a sound business case for your choice of business based on evidence.
A detailed and accurate knowledge of all aspects of the chosen business idea must be fully investigated, using a wide range of secondary and primary methods. Information must be gathered about the market, the resources required, the competition, the full requirements for managing and operating the business and management of the business finance, including consideration of all aspects of tax, paying staff and other legal obligations.
You should be able to effectively measure the outcome of your plan and if you are unable to do this then you may need to question the recommendations, especially your aims and objectives and the financial position.
The report must be consistent throughout and should avoid contradictions. This is particularly important between Resources (section B) and Finance (section C) where the resources identified and researched in section B must be included and analysed in section C accordingly.</li></ul>Formal writing style<br />The report must be presented as a formal business development plan that would be seen read and reviewed by a potential investor of the business, and should have:<br /><ul><li>Formal style of writing – generally in the third person. You should discuss the business and refer to the owners and/or partners and avoid the use of “I” or “we”.
An executive summary at the start, a contents page, a set of supporting appendices, clear sections, titles and sub-titles.
Graphs and charts inserted into the main body of the report when specifically supporting a point – e.g. a blank copy of the questionnaire used, a map of the area containing competitors or the 12 month cash flow forecast, but supporting information such as the results figures for the questionnaire or printed information about competitors from Yell, etc should be filed at the end of the report as appendices in chronological order (i.e. the first to be mentioned in the report goes as appendix one, and so on).</li></ul>You have a total time of 15 hours to create the report under controlled conditions, all lesson time and independent study time between planned controlled conditions are available for you to research, plan and prepare your notes for the writing of the formal document. <br />IT IS STRONGLY ADVISED THAT ALL PREPARATION IS DONE BEFORE THE CONTROLLED SESSIONS<br />This Externally Set Assessment is about starting up, running and developing your own business.<br />Operating under a franchise agreement or taking over an existing business are not options open to you.<br />Scenario<br />You have always wanted to work for yourself and have dreamed of starting up, running and developing your own business. You have recently received a legacy from one of your grandparents of £10 000 and feel that the time is right to fulfil your dream and open up a small business, operating as a sole trader or a partnership.<br />You realise that the legacy will not be sufficient to cover all the costs of starting up the business, and you will need to obtain additional finance from other sources. Your total start up capital is unlikely to exceed £50 000.<br />You have decided to carry out detailed research and planning, then assemble the information in a business development plan and present it in a professional format. This should clearly demonstrate your business idea as a potentially viable concern worthy of investment. Your business development plan should clearly explain your idea and the related costs to potential investors.<br />You must produce the following assessment evidence for this unit.<br />You must create a business development plan in order to convince potential investors. It is important that your business development plan clearly shows the following:<br />The Business Idea<br /><ul><li>an analysis of the outcomes of your primary and secondary research (include data and findings as Appendix 1)
the marketing mix and strategies for your business
any further market analysis and evaluation to further justify the development of your business.</li></ul>(28 marks)<br />Resource and Quality Issues<br /><ul><li>physical, financial and human resources and associated costs
any relevant legal, economic, technical and environmental constraints
how the business will be run, considering the planning and quality assurance
how your business is managed.</li></ul>(14 marks)<br />Financial Resources<br /><ul><li>sources of finance
an explanation of the likely changes (legal, economic, political, technical and environmental) over
the next two years and their impact on the finance of the business.</li></ul>(27 marks)<br />Feasibility and Evaluation<br /><ul><li>a recognition of any seasonal, cyclical or other effects that may arise
projection of the business position of the subsequent two years
difficulties of estimating future positions through the consideration of cash flow, profitability & liquidity
calculation of key ratios, analysis and evaluation over three years
justified conclusions and recommendations.</li></ul>(21 marks)<br />Unit 8 – Business Development Assessment CriteriaMark Band 1Mark Band 2Mark Band 3Mark Awarded(a)AO1,AO2,AO3,AO4Potential business idea selected, giving basic reasons for choice and viability and outlining marketing /promotional strategies and identifying competitor information.(1-14)Sound information on business idea supported by evidence of viability and detailed strategies with some justification of proposal. Sound information on competitors.(15-22)Comprehensive and original ideas with fully supported and justified evidence and proposals. Comprehensive and original information on competitors.(23-28)28(b)AO1,AO2,AO3,AO4Resource requirements and quality issues dealt with at basic level.(1-7)Resources and quality issues soundly presented, with relevant examples and good application.(8-11)Resources and quality issues comprehensively presented with fully supported detailed evidence.(12-14)14(c)AO1,AO2,AO3,AO4A finance plan providing the basic information required for sources, budgets, cash flow, break-even and accounts.(1-13)Detailed finance plan covering all required aspects showing independence of thought and clear understanding.(14-20)Comprehensive, professionally presented finance plan with accurate application and analysis of forecasts showing originality, independence of though and clear understanding.(21-27)27(d)AO1,AO2,AO3,AO4A simple evaluation of the business position at year-end and projected for three years hence.(1-10)Sound analysis and evaluation of present and projected position showing independence of thought.(11-16)Comprehensive analysis and evaluation of present and projected position with detailed and original recommendations and justified conclusions.(17-21)21Total marks90<br />AO1 Knowledge, skills and understanding<br />AO2 Application of knowledge, skills and understanding<br />AO3 Research and analysis<br />AO4 Evaluation<br />Resources<br />Source: Specification; www.edexcel.org.uk <br />Books <br />Dransfield, R and Needham, D — Advanced Business (Heinemann, 2000)ISBN: 0435453165<br />Fardon, M et al — Advanced Business (Osborne, 2000) ISBN: 1872962041<br />Glew M and Watts M — Business for Vocational A Level (Collins, 2000) ISBN: 0003291049<br />Keenan, D and Riches — Business & Law (Longman, 2001) ISBN: 0582438152<br />Websites <br />www.aloa.co.uk <br />Site for the National Grid for Learning provides vocational business resources such as case studies and interactive tests.<br />www.bized.ac.uk <br />Site provides interactive and online models and simulations for teachers and learners, and provides a valuable direct access to company reports in the UK and around the world.<br />www.hmce.gov.uk <br />Customs and Excise for VAT<br />www.hmso.gov.uk<br />Her Majesty’s Stationery Office manages and regulates the use and the licensing of the re-use of all information produced by government which is protected by Crown Copyright.<br /> <br />www.inlandrevenue.gov.uk<br />Inland Revenue for self-assessment tax and national insurance.<br />www.sfedi.co.uk<br />Small Firms Enterprise and Development Initiative.<br />www.thetimes100.co.uk<br />The Times site — a free educational resource for teachers and learners, providing 100 case studies of companies and business issues.<br />Other resources<br />www.southglos.gov.uk Contains information on planning and census data for South Glos.<br />www.ask.com Excellent how to resource which also provides other suitable searches if you do not quite phrase your search correctly – great for general research into market and consumer buying behaviour.<br />Your text book – given to you at the start of the year.<br />Section A<br />Report<br /><ul><li>Introduction – setting the scene
Summary</li></ul>Idea Development<br />Evaluate the business ideas considering the strengths and weaknesses and justify choice of business for development.<br />IdeaStrengths(e.g. owners’ qualities, location, unique idea)Weaknesses(e.g. high start-up cost, lack of tech skills, etc) Opportunities for developmentThreats to survival<br />Chosen idea is:<br />Reasons for choice:<br />Reasons why other ideas were rejected:<br />Undertaking and recording secondary research<br />Write a list of questions you want to find out from your secondary market research?<br />(Use the questions as a basis for your secondary research)<br />Location:<br />Competition:<br />Demand for product/service in general:<br />URL or AuthorsDate published /accessedTitle of book or websiteBrief description of information found.How can you use the information in your plan? competition – location/population – demandHow reliable and valid is the information? Can you use if confidently? <br />Undertaking primary research<br />Your primary research should enable you to communicate and engage with potential customers/consumers to identify their needs in relation to;<br /><ul><li>your product and service (product),
how they can find out that you exist, what you sell/provide and develop a perception about the quality of your products and services (promotion).</li></ul>There are four main methods of primary research that you can use:<br />MethodQualitative or quantitative?AdvantagesDisadvantagesHow can I use this method?SurveyFocus groupObservationConsumer panel<br />Observation record sheetCompany visited: Day: Month: Time:Purpose of visit:_______________________________________________________________________________How do customers find out information about products/services?Describe the range of products/services?Describe the process from entering the store to paying for goods/services? Are products/services consumed on the premises – what facilities are provided for this?How are questions dealt with?Other observations:<br />Designing an effective questionnaire – asking useful questions<br />Your questions should have a purpose and you need to consider;<br /><ul><li>Is the question clear and easy to follow? - ask a friend if unsure.
What will the results from this question help me to decide?
Will the information be enough – will the answer create another question?
Does the question ‘encourage’ people to give a set response?</li></ul>Try to get a variety of:<br />Closed questions – either or answers<br />Open questions – no fixed answer – opinions and judgements<br />Multiple choice – closed: Only one option suitable (e.g. age range)<br />Multiple choice – open: range of suitable options (e.g. which flavours of crisps eaten recently)<br />Order of preference: Which is most important to you in order of preference with 1 being 1st choice.<br />Attitude scale: extent to which someone agrees or disagrees with a statement or how important a particular feature is.<br />To plan your questionnaire, write the information you need and tick all the question types that would be suitable<br />Info requiredClosedOpenMultiple openMultiple closedOrder of priority Attitude scaleAge<br />Planning a focus group<br />You will need: <br /><ul><li>5 people who best represent the views of your target market.
Group to be given a list of discussion topics to talk about and left to discuss.
The researcher/you should observe their discussion and take notes about what is said and discussed. </li></ul>This type of research is qualitative and very useful to generate new ideas and gain people’s views. Make sure that you are aware of and acknowledge the restrictions with this form of research.<br />The marketing strategy<br />The combined use of the marketing toolbox (mix) to satisfy customer and consumers needs. The product should meet their needs, be accessible but realistic and within the business’ resources.<br />Business Name<br />This is your identity and can provide:<br /><ul><li>A way that customers can identify you
A way to remember you if name is original or different
Flexibility to associate to a range of different goods/services
A good way of communication – e.g. websites, logos, etc.</li></ul>What do you want your name to do for your business?<br />Possible business names<br />Chosen business name is:<br />This is because...<br />Can this name be used? How do you know?<br />Launch<br />In preparation for the first day you ‘open doors’ for business answer two questions:<br /><ul><li>What do you want customers to know?
What do you want customers to do?</li></ul>With these two aims in mind plan your marketing mix:<br />How mix will achieve aims:Aim 1 – knowledge & perceptionAim 2 - ActionProduct / ServiceWhat will you actually be offering in your product/service range at launch?PriceStrategy and actual price for your goods/servicesPlaceConsider the location and the environmentPromotionConsider all forms of promotion – i.e. display and other advertising, PR/events, merchandise, direct marketing, sponsorship, etc.ProcessHow will customers access your product/service?Physical evidenceIf a service, what physical evidence will support their purchase? Reassure the expense.PersonnelStrategies for role of staff engagement influence customer experience? <br />Future marketing strategy<br />Once you have established your business, consider the following questions<br /><ul><li>What perception do you want your customers to have of your business?
What do you want customers to do?</li></ul>With these two aims in mind plan your marketing mix:<br />How mix will achieve aims:Aim 1 – knowledge & perceptionAim 2 - ActionProduct / ServiceWhat will you actually be offering in your product/service range?PriceStrategy and actual price for your goods/services. How will this change?PlaceConsider the location and the environmentPromotionConsider all forms of promotion – i.e. display and other advertising, PR/events, merchandise, direct marketing, sponsorship, etc.ProcessHow will customers access your product/service?Physical evidenceIf a service, what physical evidence will support their purchase? Reassure the expense.PersonnelStrategies for role of staff engagement influence customer experience? <br />Sole trader or partnership<br />You are setting up a small business and the controlled assessment states that you will choose either a sole trader or a partnership. <br />Sole trader<br />If my business was set up and operated as a sole trader, I would benefit by:<br />However, the risks would be:<br />As a business owner I am able to:<br />As a business owner my legal responsibilities would be to:<br />Partnership<br />If my business was set up and operated as a partnership, I would benefit by:<br />However, the risks would be:<br />As a business partner I am able to:<br />As a business partner my legal responsibilities would be to:<br />Legal form for business: <br />Reasons: <br />Aims and objectives<br />Financial aim:<br />SMART objectives to achieve this aim<br />Communication aim:<br />SMART objectives to achieve this aim<br />Quality aim:<br />SMART objectives to achieve this aim<br />Other aim (optional):<br />SMART objectives to achieve this aim<br />Controlled coursework checklist: <br />Market research findingsMarket research simple analysisResearch log with sourcesNotes on each section<br />Section B – Resources <br />Report<br /><ul><li>Size and scale of business
(inc. Strategies for assuring quality – the process should ensure quality rather than just check quality and allow mistakes to happen; procedures for dealing with poor quality and customer response. Legal issues)
How your business is managed.</li></ul>Measuring the scale of your business:<br />No of customers:<br />No of employees:<br />Sales turnover (value of sales):<br />Sales volume (qty of sales):<br />Extent of distribution:<br /> Many<br />restricted(experience, skills and resources)Good(market potential)<br /> few<br />Use your identified position to project and explain the scale of your business and potential for growth and what this means for the resources requirements for your business now and in the future.<br />Description of the business idea in action<br />On a standard day<br />Preparation before ‘opening’/engaging with customers:<br />First hour of ‘opening’<br />Morning:<br />Mid-day:<br />Afternoon:<br />Evening:<br />Night:<br />From this description of the day list the specific resources required:<br />Physical:<br />(Location, premises, facilities, machinery, tools, equipment, material, stocks and services)<br />Human:<br />(people working in and for the business – particular roles or skills needed)<br />Financial:<br />(start-up and working capital)<br />You now need to identify and research these resources<br />Resources research<br />ResourceHuman, financial or physicalUse/roleFrequency requiredPriority rating 1-5 (1=essential 5=desirable)rent or buy?SupplierCostConstraints (legal, etc)<br />Physical resources<br />In your report you will have to present, explain and justify the physical resources required and the associated costs you will also need to explain the legal, economical, technical and environmental constraints associated with the resources you plan to obtain to set up and run your business.<br />Human resources<br />The staff roles in the business:<br />Job titleMain dutiesResponsibilitiesSkills requiredWage / salaryRecruitment<br />Legal issues associated with employment (include training required and salary related – min wage paying N.I. etc):<br />General:<br />Specific to your business:<br />How will you manage your staff in terms of:<br />Performance:<br />Tasks/duties:<br />Meeting your legal obligations:<br />Design, explain and justify an organisational structure for your human resources. Explain the structure type and why it will be suitable for your business. This should outline the <br />Quality assurance<br />Write a definition of quality<br />Consider the meaning of quality to the customers of the following:<br />Taxi to the airport:<br />Website designer:<br />Window cleaner:<br />Your product/service:<br />What is the trade off between cost and quality in relation to your business?<br />Research and write three quality statements from local and regional businesses to you:<br /><ul><li>
</li></ul>Research the obligations that businesses have to customers and consumers when selling products and services. <br />Explain the methods of quality assurance available<br />Explain and justify the methods of quality assurance you will use.<br />Write a customer complaints procedure<br />Financial resources<br />What will be your start-up costs/resources and costs? (start-up capital)<br />What will be your running costs? (working capital) to efficiently run and manage business.<br />It is expected that costs to start-up will not exceed £50,000 in total – how will you stick to this figure? What could effect and result in variances in your loan.<br />Section C – Finance<br />Report<br /><ul><li>Sources of finance
Break even </li></ul>Research and evaluate the sources of finance available (remember you are only a sole trader or partnership) Use text book pages 38-40, business link website and bank websites for information:<br />SourceLong or short termUsed to fund...AdvantagesRisks/costsEvidence required to obtain<br />With the inheritance money of £10,000 how much do you expect to borrow in addition to this?<br />What is your start-up budget?<br />How will this budget be split:<br />Location<br />Marketing<br />Stock<br />Labour<br />Other<br />How will you deal with budget variances (when the money allocated is either not enough or not enough of budget spent)<br />Cash flow forecast<br />You will be assessed on the figures you input (which must be consistent with the costs identified in section B) and your interpretation of what the cash flow forecast balances mean to the development of your business.<br />Use the cash flow document that you have in your CD. <br />You must enter and justify your income and your expenditure:<br />Predicting your income realistically<br />First you must identify what is the maximum amount you could sell with the resources and capacity that you have? This will identify your upper limit on sales revenue received. Anything that exceeds your capacity to sell is going to be unrealistic.<br />E.G. <br /><ul><li>If you are a taxi firm and you have two taxis operating with an average ‘job’ taking 40 minutes to collect, take to destination and drive to next collection point, what is your maximum output in terms of jobs in any day?
If you are a juice bar and you have 4 members of staff making juices that take average 5 mins to make one fresh juice, how many juices can you make in one day? </li></ul>Consider the frequency of purchase from your customers? Which days are most likely to be popular? Which days will be quiet? Will you be closed for business at certain times of the day?<br />DayOpening hoursOutput / capacity usedAverage selling priceValue of salesMondayTuesdayWednesdayThursdayFridaySaturdaySunday<br />** remember that when you input the information into your cash flow document the information is monthly so you will also have to consider seasonal variances.<br />*** If you have groups of products that will sell at different frequencies or price ranges, separate them into product groups and then use the table above to predict output and sales accordingly.<br />**** use your research to support your predictions in terms of sales expected.<br />Other considerations with anticipated income<br />If you exceed the VAT limit within any quarter (3 months) you will be required to register for VAT.<br />You can research the current VAT limit and rate at www.hmce.gov.uk <br />You have two different options – you add VAT to your products at 17.5%. Each quarter you have to pay the VAT collected to the Govt.<br />The standard agreement is that you calculate the VAT collected less the VAT you have paid for your supplies of goods and services for your business and then you pay the Govt the difference.<br />However some items are exempt from VAT. This includes wages, tax, anything paid to the Govt, anything bought from a small business that does not charge VAT, cold take-away food, MOT on cars, children’s clothes, certain obligatory safety equipment e.g. motorcycle helmets. The list is large and you will need to visit the website to find out.<br />Calculating VAT is a time consuming and costly exercise and some businesses opt to join a flat rate scheme – this involves no calculations but you simply pay the Govt a set (lower) percentage of VAT on all sales – this is different depending on which type of business you are.<br />Research the following information:<br />Annual VAT limit:Quarterly VAT limit:<br />What rate do I have to charge VAT on?<br />Will any of my products be VAT exempt?<br />Are any of the products/services bought by the business VAT exempt?<br />VAT calculation or flat rate scheme?<br />Predicting costs<br />Use the research in section B to input your costs.<br />As a cash flow forecast includes all money coming in and out remember to include the costs of your financial resources – e.g. loan repayment amounts.<br />Ensure that you justify your costs; are they essential to the effective management of your company?<br />Ensure you include obligatory costs such as PAYE (including National Insurance) for staff and your own drawings as owners/partners. Drawings is your income in advance of the profit.<br />Explaining the balances<br />Net cash flow: <br />Total income – total expenditure: will identify the difference between money received and money spent every month. Why is this important?<br />Opening balance: The money that you start with at the beginning of the month. The first month will contain your start-up funds including loans and the remaining months the opening balance will be the closing balance from the previous month.<br />Closing balance: The money left ‘in the pot’ at the end of the month. You must interpret what these figures mean for your business and what you need to do about it.<br />The Balance Sheet<br />Use the balance sheet spreadsheet on your finance documents CD to help you with this. The spreadsheet contains notes on how to complete.<br />The balance sheet is a snapshot of the business financial position at a point in time. For this assignment you will provide figures for opening balance sheet (at the start) and the closing balance sheet (at the end of the first year).<br />You will have to include the following information:<br />Fixed assets (large items owned – e.g. land, buildings, vehicles) – remember that vehicles depreciate in value. Use the straight line method of depreciation given below to calculate.<br />Current assets (stock, money in the bank, etc)<br />Long term liabilities (loans longer than 12 months)<br />Current liabilities (overdraft, short term loans, trade credit, etc)<br />Capital used to finance the business.<br />Follow the instructions on the spreadsheet to complete.<br />You must explain and justify how you have identified the figures in your balance sheet.<br />Use text book pages 48-49, business link and use search engines to help you to interpret the meaning of the balance sheet. Make sure you acknowledge the sources for your information.<br />Calculating depreciation<br />Depreciation is the decrease in the market value of a product over time. <br />By applying depreciation to profit before tax the profit is reduced and therefore less tax is payable.<br />By applying depreciation the balance sheet will reflect the true value of fixed assets rather than the original value.<br />To identify depreciation each year simply, calculate;<br />The original value of the products – value at end of life <br /> Expected life in years<br />Projected profit and loss<br />This is an annual statement produced at the end of the first 12 months for a business plan and therefore it is projected.<br />The profit and loss is calculated purely by the income from sales less the expenditure. This is NOT the same as cash flow as it does not take into account income from loans and other borrowing and it does not identify repayment of such borrowing.<br />It includes all costs incurred during the year including start-up costs.<br />It is a good idea to complete the profit and loss statement after you have completed the 12 month cash flow forecast as most of your figures can be taken from the sum of your monthly figures.<br />When taking figures across you will need to sort the different costs into a list:<br />Cost of salesRunning costs<br />The cost of sales are taken from the Revenue first to identify the gross profit. The running costs are then listed and the total running costs are taken from the gross profit to identify the NET profit – this is profit before tax.<br />In your first year you can expect to make a loss due to the large start-up costs which should have been covered by borrowing which is not identified in profit and loss. However, profit is important in the long-term to enable a business to re-invest back into the business and to make the business develop effectively.<br />Remember to justify the source of your data and to explain what the gross and net profit mean to your new business. It is quite likely that survival and possibly profit would have been an aim for you earlier in the plan you need to link this in when describing how and why this will affect your business.<br />Break even<br />The calculation for break-even is <br />Monthly fixed costs / selling price – variable cost per unit. <br />E.G. if the selling price of my sandwiches are £2 and it costs me on average 50p to make each sandwich (variable cost) and my fixed costs are £3,000 per month, then the calculation would be:<br />£3,000 / £2 - £0.50 = £3000 / £1.50 = 2000 units<br />Therefore, I would have to sell 2000 sandwiches every month to break even. Any sales after this would start making a profit.<br />Identify the data required from your research and other spreadsheets:<br />Selling price (average):<br />Monthly fixed costs:<br />Variable cost per unit (ave):<br />Break even point is:<br />What does this mean to the effective running of your business?<br />Use the finance document on the CD resource to help to present your break-even point with a graph. Use the spreadsheet to experiment with different prices and costs to identify how the break even point could be affected by different changes:<br /><ul><li>A new competitor forces a price drop to remain competitive.
Interest rates go up by 10% this affects your lease and your vehicles forcing them to increase.
A new supplier puts up the costs of your stock by 20% due to a new import restriction.</li></ul>Experiment with the spreadsheet to identify the lowest price you can drop to before making a loss. The effect on break-even point that a drop in either variable or fixed costs would have and the subsequent effect on the business.<br />Controlled coursework<br />You are permitted to take a draft of each document into the coursework containing all of the figures you need. Ensure that you take advantage of this opportunity and include them with your notes – your actual documents in the controlled coursework must be produced and included with your final report.<br />ExternalInfluences onThe projected Financial positionTechnicalEconomicalPoliticalEnvironmentalLegalList of evidence/sources<br />Section D – Finance<br />Report<br /><ul><li>a recognition of any seasonal, cyclical or other effects that may arise
projection of the business position of the subsequent two years
difficulties of estimating future positions through the consideration of cash flow, profitability & liquidity
calculation of key ratios, analysis and evaluation over three years
justified conclusions and recommendations.</li></ul>Create a line graph of the projected net cash flow and closing balances for the first 12 months and explain the patterns that occur.<br />Net cash flow:<br />Closing balance:<br />Complete the table below to identify the patterns in the net cash flow and how you can plan for this.<br />BalanceMonthsExplanation/reasonAction requiredSurplusEqualDeficit<br />Complete the same table for to identify patterns in the closing balance and how you can plan for this<br />BalanceMonthsExplanation/reasonAction requiredSurplusEqualDeficit<br />Projection of business of next two years<br />Review your aims and objectives at the end of the first year<br />Have your aims and objectives been achieved?<br />What will be your revised aims and objectives?<br />Describe how you envisage your business developing and growing in <br />2nd year:<br />3rd year:<br />What additional resources will you need?<br />How will you fund this development?<br />Provide a cash flow forecast for years 2 and 3 – ensure that you illustrate where changes occur – allowing for general rise in costs and any costs of planned development (e.g. more staff, new location, etc)<br />Use your line graphs of the expected balances for the next two years and explain what this means.<br />Discuss the difficulties with identifying future financial positions.<br />Calculation of key ratios<br />Profitability ratios<br />Gross profit margin: Gross profit / sales revenue x 100<br />Net profit margin: Net profit / sales revenue x 100<br />The Gross profit margin should be high and the net profit margin is unlikely to exceed 30%.<br />Key questions to answer<br />If you have a high gross profit margin and a very low net profit margin or a loss this would indicate that?<br />If you have little difference between gross and net profit margin, this means that:<br />What do your gross and net profit margins say about your business at the end of year 1?<br />What are your projected gross and net profit margins?<br />Why?<br />Liquidity ratios<br />Taken from the balance sheet data they seek to identify a businesses’ liquidity. (this means ability to pay immediate debts).<br />Current ratio – Current assets / current liabilities – simple test of liquidity<br />Acid test – Current assets – Stock / current liabilities – tougher test of liquidity as stock would be difficult to shift quickly and does therefore does not take this into account when working out a business’ ability to pay back immediate debts.<br />Generally a business should have a current ratio of 1.5 – 1. Any lower and a business risks being able to pay its bills.<br />If it is much more the business will probably have resources tied up, and not be using them effectively.<br />Calculate the current ratio and acid test ratio – explain what it means...<br /> <br />Describe how you would anticipate these ratios changing over the first 3 years of business.<br />Evaluation and what if scenarios<br />Over-forecasting: Is where you predict higher sales than is realistic and can result in a number of problems: <br /><ul><li>Low motivation due to high targets
Inability to pay for costs as planned.</li></ul>List the actions you would put into place if you find you have over-forecasted sales figures.<br />jo<br />SWOT analysis<br />At the end of your detailed business development plan, use the SWOT analysis. Try not to over-state strengths and opportunities. <br />What ifs<br />Consider the operational aspects of your business that are effectively your business in action; marketing mix, daily and weekly plan, resources in action, etc and try to consider a range of what ifs/ what could go wrong and write the actions you could undertake to resolve.<br />What ifImpact on businessAction<br />Conclusions and recommendations<br />This is the point where you justify the development of your business and make recommendations based on your analysis in section D.<br />Identify the key times in which you will monitor your business is on track and how will you do this – i.e. what indicators will you use to track progress.<br />