AQA AS Business UNIT 1 REVISION WORKSHOP

1. AQA AS Business UNIT 1 REVISION WORKSHOP

2. Today

3. Session 1 A Viable Business Idea

4. Some Important Concepts ENTERPRISE RISK 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 All businesses have SCARCE RESOURCES Particularly new or small ones!

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. 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?

19. Fixed or Variable?

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

21. An Example

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 Total sales 100 90 80 Total costs 70 60 Sales and costs (£’000) 50 Fixed costs 40 30 Variable costs 20 10 0 1 2 3 5 6 7 8 9 10 4 Units of Output (‘000)

29. Higher or lower?

30. Higher or lower?

31. Cash flow forecast - example 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

32. Complete the missing numbers

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

34. Session 3 Financing the Start-up

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

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

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

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

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

40. Business Set-up Day-to-day trading Growth 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…

41. Main sources of start-up finance Internal Sources External 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. Session 4 Understanding the Market

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

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

47. Factors that affect demand

48. Factors that affect demand • Prices • Incomes • Tastes & fashions • Competitor actions • Social & demographic • Seasonal • Government action

49. Market segmentation Segment B Segment C Segment D 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