1.3 Putting a Business Idea into Practice Practice Questions

Case study

Read the following extract before answering the questions.

Pedal Post is a cycle courier business based in Norwich. It was set up in 2021 by sole trader Ama Boateng, who delivers parcels for local shops using electric cargo bikes. Ama employs two part-time riders and rents a small storage unit near the city centre for £420 a month. Shops are charged £4.50 for each delivery made within the city and most of them pay Ama at the end of the month. Ama also pays for bike servicing, insurance and replacement batteries.

In April two of the shops Pedal Post delivers for closed down, so the number of deliveries was lower than Ama had expected. Ama uses a cash-flow forecast each month to keep track of the money entering and leaving the business.

Cash-flow forecast for April

	April
Opening balance	£1 200
Total cash inflows	£6 400
Total cash outflows	£5 950

Table 1

Table 1 contains financial information about a small business for one month.

Item	Amount
Selling price per unit	£14
Variable cost per unit	£6
Fixed costs for the month	£4 400
Units sold in the month	950

Table 1

Case study

Read the following extract before answering the questions.

Harbour Lights Café is a small café in the seaside town of Whitstead. It was opened in 2022 by Jaya Mistry, who had worked as a chef in a hotel chain for eleven years. Jaya wanted to be her own boss and to decide herself which dishes appeared on the menu, rather than cooking from a menu written by a head office. Working close to home also means she can collect her son from school.

Harbour Lights serves breakfasts and lunches made with ingredients from farms in the area. There are four other cafés in Whitstead. Jaya's first aim was for Harbour Lights to still be trading after twelve months. In Year 2 she added an outdoor seating area and began opening on Sunday mornings.

Revenue in Whitstead

	Year 1	Year 2
Harbour Lights Café revenue	£96 000	£120 000
Total revenue of all cafés in Whitstead	£800 000	£1 000 000

Table 2

Table 1 contains information about a small business that makes garden benches. In June the business made and sold 45 benches.

Fixed costs for the month	£1 950
Variable cost for each bench	£62
Selling price for each bench	£130

Table 1

Case study

Read the following extract before answering the question.

Bloom & Bramble is a florist's shop in Shrewsbury owned by Joanne Rahman, who runs the business as a sole trader. Joanne opened the shop in 2022 using £5 000 of her own savings and a £4 000 bank loan. The shop sells bouquets from £18 and makes flower arrangements for weddings and funerals. Wedding customers pay a deposit when they book, often several months before the flowers are needed.

Joanne buys fresh flowers twice a week from a wholesaler in Birmingham and pays on delivery. She also pays rent of £780 a month for the shop and wages for one part-time assistant. Because flower sales vary a lot during the year, Joanne produces a cash-flow forecast each quarter.

Cash-flow forecast for January to March

	January	February	March
Cash inflows	£6 200	£5 400	£9 800
Cash outflows	£5 900	£6 100	£7 300
Opening balance	£1 200	£1 500	£800

Table 2

Case study

Read the following extract before answering the questions.

Wick & Wax is a small business in Shrewsbury that makes scented soy candles by hand. It was set up in 2022 by Lorna Fenn, a sole trader who works from a rented workshop on an industrial estate. Candles are sold for £12.00 each at craft markets across the county and through the business's own website.

Lorna buys soy wax, glass jars, wicks and fragrance oils from a wholesaler. Her fixed costs include the rent on the workshop, insurance and the monthly fee for the website. In September Lorna sold 500 candles, which was her best month so far.

Lorna's wholesaler has written to her to say that the price of soy wax will rise next year because of poor harvests. Lorna is worried about what this will mean for Wick & Wax.

Financial information for September

Item	Amount
Selling price per candle	£12.00
Variable cost per candle	£4.50
Fixed costs for the month	£2 625
Candles sold	500

Table 1

Case study

Read the following extract before answering the questions.

Clay Yard is a pottery studio in Stockport. It was set up in 2023 by Nadia Rahman, who had spent nine years teaching art in a secondary school. Nadia wanted to make her own decisions about what she taught and when she worked, instead of following a timetable set by someone else, and she wanted the challenge of building something of her own.

Clay Yard runs evening classes for adults at £28 a session and sells hand-thrown bowls and mugs from a small shop at the front of the studio. Nadia used £9 000 of personal savings to buy two kilns and to pay six months' rent in advance on the unit.

Nadia's first aim was for Clay Yard to still be open after one year. She has also set an objective of selling 40 class places every week by the end of her second year. Clay Yard has two competitors within five miles, one of which charges £22 a session.

Table 3 contains financial information about a small business for the month of June.

Item	June
Fixed costs	£6 000
Selling price per unit	£15
Variable cost per unit	£7
Units sold	1,100

Table 3

Case study

Read the following extract before answering the question.

Bright Spark Candles is a small business based in Kendal. The owner, Amira Patel, is a sole trader. She hand-pours soy wax candles into recycled glass jars and sells them for £12.00 each at farmers' markets in Shropshire and through her own website. Amira set the business up in 2020 using £3 000 of her personal savings.

Each candle is made from soy wax, a cotton wick, fragrance oil and a glass jar. Amira buys her jars from a wholesaler in Birmingham, who charges £1.80 for each jar. She rents a small workshop and also pays insurance, website costs and market stall fees each month.

Sales are highest between October and December. A wholesaler in Manchester has offered to supply similar glass jars for £1.35 each. However, Amira would have to order at least 500 jars at a time and the jars would be delivered in plain boxes rather than in protective packaging.

Financial information for October

Item	October
Selling price for each candle	£12.00
Variable cost for each candle	£4.60
Fixed costs	£1 450
Candles sold	900

Table 4

Case study

Read the following extract before answering the question.

Fresh Cut Landscaping is a partnership based in Carlisle. Gina Shaw and Marek Nowak set the business up in 2019 after working as gardeners for the local council. The partnership maintains gardens for homeowners and has a contract to look after the grounds of two hotels. A standard garden visit costs £45.

The business employs two full-time gardeners, who are paid at the end of each month, and leases a van for £380 a month. Fuel, plants and compost are bought from a garden centre in the city.

Demand is seasonal. Between November and February very few homeowners book garden visits, although the hotel contract is paid in equal monthly amounts throughout the year. The hotels pay 30 days after an invoice is sent.

Gina and Marek want to buy a ride-on mower costing £6 500 so that they can take on larger grounds-maintenance contracts. Before deciding, they have produced a cash-flow forecast for the first three months of the year.

Cash-flow forecast, January to March

	January	February	March
Cash inflows	£4 200	£3 800	£7 600
Cash outflows	£5 100	£4 600	£5 900
Opening balance	£2 300	£1 400	£600
Closing balance	£1 400	£600

Table 5

Figure 1 shows a break-even diagram for a small business.

Figure 1

Table 1 contains information about a small business that prints T-shirts. In June the business sold 500 T-shirts.

Selling price for each T-shirt	£15
Variable cost for each T-shirt	£6
Fixed costs for the month	£3 150

Table 1

Case study

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Tidy Turf is a garden maintenance and landscaping business based in Chester. It is owned by Marcus Bell, a sole trader, who employs three gardeners. Household customers pay cash on the day their work is done.

Last year Marcus won contracts with two letting agencies to look after the gardens of rented properties. The contracts are worth £42 000 a year, but the agencies pay their invoices 60 days after the work has been completed. Marcus pays his gardeners weekly. He buys plants, turf and fuel from a local supplier who insists on payment within 14 days.

Demand falls sharply in winter, when Marcus still has to pay wages, van leasing costs of £410 a month and insurance. Marcus has an overdraft facility of £3 000 with his bank. He has produced a forecast of the net cash flow of Tidy Turf for the next financial year.

Figure 1: Forecast net cash flow for Tidy Turf for the next financial year

Case study

Read the following extract before answering the questions.

Thunder Lane Climbing is an indoor climbing centre in a converted warehouse in Hull. It was opened in 2019 by Deniz Kaya, who had worked as a climbing instructor for six years. Members pay £42 a month and day passes cost £11. The centre employs four instructors on annual salaries and rents the warehouse for £3 100 a month.

Membership has grown steadily and the centre is now busy every weekday evening. Some members have cancelled because they have to queue to use the climbing walls. Deniz wants to spend £40 000 on building a second climbing area and installing new auto-belay equipment.

Thunder Lane Climbing made a profit of £19 000 last year and Deniz has £6 000 of personal savings left. Deniz is considering two options to raise the £40 000 needed.

Option 1: a five-year bank loan at 9% interest

Option 2: crowd funding, offering supporters three months of free membership in return for their money

Case study

Read the following extract before answering the questions.

Greenhill Garden Rooms is a small business in Carlisle that designs and builds garden offices. It was set up in 2020 by two partners, Rhys Elliot and Carol Innes, who previously worked for a local building firm. A standard garden room is priced at £9 800. Customers pay a deposit of 25% when they place an order and pay the rest when the work is finished, which can be up to ten weeks later.

Greenhill buys timber, glass and insulation from a builders' merchant that expects payment within 14 days. The business employs three joiners who are paid weekly whether or not there is work to do. Demand is seasonal, with very few orders placed between November and February.

In March the partners must pay £4 900 for a replacement delivery van and the annual insurance bill. The partners are proud that Greenhill has never missed a payment to its builders' merchant.

Cash-flow forecast for January to March

	January	February	March
Total cash inflows	£14 500	£9 800	£21 300
Total cash outflows	£16 200	£15 400	£18 700
Net cash flow	−£1 700	−£5 600	£2 600
Opening balance	£7 900	£6 200	£600
Closing balance	£6 200	£600	£3 200

Table 3

Case study

Read the following extract before answering the questions.

Masala Wheels is a street food business in Leicester run by Priya Shah and Sanjay Varma as a partnership. They sell boxes of curry and rice from a converted van at lunchtime on a city centre market pitch, and at music festivals at weekends. A box is priced at £7.00.

The partners buy chicken, rice and spices from a cash-and-carry three times a week, and also pay for cooking gas and takeaway boxes. The rent for the market pitch has risen from £290 to £360 a month and the price of cooking oil has increased. There are two other food vans on the same market.

Priya and Sanjay want to increase the monthly profit of Masala Wheels. They are considering two options.

Option 1: increase the price of a box from £7.00 to £8.00

Option 2: reduce the variable cost of a box from £2.80 to £2.20 by placing one large order each week with a wholesaler, which would mean buying a second freezer

Current monthly figures for Masala Wheels

Item	Amount
Selling price per box	£7.00
Variable cost per box	£2.80
Fixed costs per month	£4 200
Boxes sold per month	1 400

Table 2

Case study

Read the following extract before answering the question.

Gearbox Mobile Mechanics Ltd is a private limited company based in Swindon. Dan Okafor started the business in 2019 using £6 000 of his personal savings and a £4 000 loan from his sister. The business services and repairs cars at customers' homes and workplaces. A standard service costs £85 and Gearbox completes around 60 services a month.

Dan now employs one other mechanic and the business runs two vans. Gearbox rents a lock-up garage for £400 a month to store parts and tools, and pays £1 900 a year for van insurance. Last year the business made a profit of £11 000, of which £7 000 was kept as retained profit.

Demand has grown and customers in nearby towns are being turned away because both vans are fully booked. Dan wants to buy a third van, fit it out with tools and employ another mechanic. The total cost would be £18 000.

Dan is considering two options:

Option 1: Take out a bank loan of £18 000, repaid over five years at an interest rate of 8% per year.

Option 2: Sell shares in Gearbox Mobile Mechanics Ltd to a friend, who would invest £18 000 in return for a 25% share of the business.

Case study

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Tidy Tails is a dog grooming salon in Ipswich. Sophie Mellor opened the salon in 2021 as a sole trader after training as a groomer. A full groom costs £35 and Tidy Tails carries out around 180 grooms a month. Most customers are local dog owners who pay by card on the day.

Sophie rents the salon for £900 a month and employs one part-time groomer, who is paid weekly. She also pays for shampoos, towels and the electricity used by the heated dryers and washing machines.

Last year Sophie signed contracts with two boarding kennels. The kennels send dogs for grooming every week and now provide about a third of all grooms, but they pay 30 days after receiving an invoice. In March, one kennel paid six weeks late and Sophie had to use her own savings to pay the salon rent.

Sophie's aim is to open a second salon in Colchester within three years. She has been told that she will need a deposit of £12 000 before a landlord will give her a lease.

Case study

Read the following extract before answering the question.

Loaf & Ladle is a small café in Durham owned by Amara Shah. It sells home-made soup at £4.20 a portion and sandwiches at £3.80. The café opened in 2019 and employs six people.

Amara pays rent of £950 a month on the café and an insurance premium of £120 a month. Ingredients are bought from a wholesaler three times a week and paid for on delivery. Sales are strong from September to June, when the city's students are in Durham, but fall by about a third in July and August.

Amara wants to buy a refrigerated van costing £8 000 so that Loaf & Ladle can deliver trays of soup to offices on the business park and sell at outdoor food markets at weekends. She believes the van would spread the café's sales across the whole year. Loaf & Ladle has built up £8 400 of retained profit over the last two years, and Amara's bank has offered the business a loan.

Case study

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Nova Nails is a nail salon in Swansea owned by Carys Lloyd, a sole trader. Carys left a salaried job at a large city-centre salon and used £6 000 of her savings, together with a £5 000 bank loan, to fit out a small unit on a busy shopping street. The salon offers manicures at £22 and gel extensions at £38.

Carys set herself aims for her first two years of trading. Her financial aims were for Nova Nails to survive its first year and then to increase sales revenue by 20% in year two. She also wanted the independence to choose her own working hours so that she could collect her daughter from school, and she has promised to offer a paid training place each year to a school leaver from the local area.

Rent on the unit is £680 a month and Carys employs one full-time nail technician. Two new nail salons have opened within a mile of Nova Nails in the past year, and one of them charges £16 for a manicure. Several customers have asked Carys to open on Sundays, but this would mean paying overtime and giving up time with her family.

Sales revenue and total costs for the first six months

Month	Sales revenue	Total costs
April	£4 100	£4 600
May	£4 650	£4 550
June	£5 200	£4 700
July	£5 050	£4 650
August	£3 800	£4 400
September	£4 900	£4 700

Table 3