1.4 Making the Business Effective Practice Questions

Table 1 shows the monthly costs of a workshop unit that a small business is thinking of renting.

Item	Amount
Rent of unit per month	£1,800
Insurance per month	£150
Variable cost per unit produced	£4
Units produced per month	2,000

Table 1 shows the products sold by a small business at a craft market in one weekend.

Product	Selling price	Number sold
Scented candle	£12	240
Reed diffuser	£20	90

Marek Nowicki is planning to open Loaf & Ladle, a sandwich and soup shop, as a sole trader in Taunton. All of the soups will be made fresh each morning in the shop. Marek has looked at four units he could rent in different parts of the town.

Table 1: Units available to rent in Taunton

Unit	Weekly rent	Customers passing each day
A – Station Road	£250	900
B – Market Square	£300	1,400
C – Riverside Retail Park	£375	1,100
D – Hill Street	£325	700

Read the following extract carefully and then answer the questions that follow.

Coed Benches

Owen Price is a sole trader who makes oak garden benches. He set up Coed Benches in 2019 and now employs two joiners.

The workshop is a unit on an industrial estate outside Wrexham. The rent is £950 a month, which is much cheaper than units in the town centre. The unit is three miles from a sawmill that delivers the oak Owen uses. Oak is heavy and expensive to move, and a finished bench weighs far less than the timber it is cut from.

Benches are priced from £320. About 60% of orders come from customers across the UK, who order on the Coed Benches website and pay online. These benches are collected from the workshop by a courier. The other 40% of benches are sold to garden centres within 30 miles of Wrexham.

The broadband connection on the industrial estate is slow and often drops out. Two customers have been unable to complete their payment and have cancelled their orders, and video calls with garden centre buyers are difficult.

A larger unit has become available on a retail park on the edge of Wrexham. The rent there is £2,100 a month. It has fast broadband and around 4,000 cars pass it every day, but it is 40 miles from the sawmill.

Read the following extract carefully and then answer the questions that follow.

Zest

Kofi Mensah opened Zest, a juice and smoothie bar, in 2021. It is a single kiosk inside a busy railway station in Bristol, where more than 20,000 passengers pass through each weekday.

Zest sells freshly made juices and smoothies at £4.50, which is 50p more than the two chain cafés in the same station. Every drink is made to order from fruit delivered each morning by a local wholesaler, and customers can add a 'boost', such as ginger or protein powder, for 60p. Cups are compostable, and customers who bring their own cup pay £4.

Kofi posts a 'drink of the week' on social media every Monday and has 6,000 followers. Students who show a university card get 10% off between 2pm and 4pm, the quietest part of the day. Zest does not deliver and has no website.

Kofi rents the kiosk for £1,400 a month and employs two part-time staff. He believes the queue moves quickly because the menu is short, and that regular customers come back because they are served by name.

Table 1 shows the number of drinks sold at Zest over four weeks.

Week	Number of drinks sold
1	620
2	540
3	700
4	660

Read the following extract carefully and then answer the questions that follow.

Extract A: Clay & Co

Rosa Hussain, aged 29, works as an art technician in a secondary school. She plans to leave her job to open Clay & Co, a pottery studio in a converted warehouse unit in Chester. The studio will offer two-hour taster classes at £35 per person and will also sell finished bowls and mugs priced between £18 and £40.

Starting the business will cost £24,000. A kiln alone costs £9,000 and the rent on the unit is £900 per month. Rosa has £10,000 of her own savings and is applying to a bank for a £14,000 loan.

Before applying, Rosa surveyed 120 local people. Of those asked, 68% said they would pay £35 for a taster class, and most said they would prefer evening classes. There are two other pottery studios within 10 miles of the unit, both of which only sell finished pottery rather than running classes.

Rosa has written a business plan. It sets out her aim of taking a wage of £1,500 a month by the end of year two, her target market of adults aged 25 to 45, a cash-flow forecast for the first 12 months, and the marketing mix she will use. She has never run a business before and is worried that she has underestimated her costs.

Read the following extract carefully and then answer the questions that follow.

Extract A: Chilli & Lime, Sheffield

Dev Sharma opened a Chilli & Lime outlet in Sheffield city centre two years ago. Chilli & Lime is a chain of 46 Indian street-food outlets, 40 of which are run by franchisees.

Dev paid a franchise fee of £22,000 to buy the franchise and pays the franchisor 6% of his revenue every month. Before opening, he completed two weeks of training at the franchisor's head office, where he learned the recipes and how to control stock. The franchisor supplies branded packaging, uniforms and the shop signs, and runs a national social media campaign for all 46 outlets.

Dev had worked in kitchens since he was 18 but had never run a business. He employs six staff and last year the Sheffield outlet had revenue of £310,000.

In return, Dev must buy his curry sauces and spice blends from an approved supplier chosen by the franchisor, even though a wholesaler two miles away sells similar sauces for less. He is not allowed to add dishes to the menu. Several customers have asked for a vegan option, which the franchisor has so far refused to introduce.

Read the following extract carefully and then answer the questions that follow.

Two Rivers Kayaking

Chloe Shah and Tom Reece have been business partners since 2021. Their business, Two Rivers Kayaking, runs guided kayak trips and beginner courses on rivers in Shropshire. A half-day trip costs £38 per person and a beginner course costs £120.

The partners own 34 kayaks, which are kept in a rented storage unit costing £400 a month. They also pay £2,400 a year for public liability insurance. In the summer they employ four instructors, who are paid only for the hours they work. Last year the business made a profit of £31,000, which the two partners shared equally.

Chloe and Tom did not sign a deed of partnership when they started. They now disagree about the future of the business. Chloe wants to buy a minibus and trailer, costing £60,000 in total, so that groups can be collected from Shrewsbury and driven to the river. Tom is worried about borrowing so much money, because as partners they have unlimited liability.

A bank has offered Two Rivers Kayaking a £60,000 loan repayable over five years. Alternatively, the partners could convert the business into a private limited company and sell shares to two friends who have offered to invest the £60,000. The friends would then own part of the business and would expect a share of the profits each year.

Read the following extract carefully and then answer the questions that follow.

Ruby's Reclaimed

Ruby Hartley restores old furniture and sells it through her business, Ruby's Reclaimed. She started as a sole trader in 2020, working in her garage, and now rents a workshop. She strips, repairs and paints tables, chairs and dressers, and a restored dresser sells for between £340 and £600.

About 70% of sales are made through her website and a social media account followed by 14,000 people, where she posts short videos of each restoration. Buyers pay online and the furniture is delivered by a courier for £45 anywhere in England and Wales. The remaining 30% of sales are made to people who visit the workshop.

Ruby buys damaged furniture at house clearances and auctions within 50 miles. Customers often tell her they buy from Ruby's Reclaimed because of the quality of her work and because she will match a paint colour to a customer's room at no extra charge.

Ruby's lease ends in March and she must choose a new workshop. Table 1 shows the two sites she is considering.

Table 1: Two possible workshops for Ruby's Reclaimed

	Site A: farm building, 6 miles from Hereford	Site B: unit on Hereford high street
Annual rent	£7,200	£19,800
Floor space	180 m²	70 m²
Broadband speed	Fast	Fast
People passing each day	About 20	About 3,500
Parking for customers	10 spaces	None

Read the following extract carefully and then answer the questions that follow.

Pedal & Pump

Dev Patel is a sole trader who owns Pedal & Pump, a bicycle repair shop in Hull. The shop is on a side street close to a cycle path and opens from 9am to 5pm, Monday to Saturday.

A standard service costs £35 and takes about an hour. A mobile mechanic who works in the same part of Hull charges £28 and repairs bikes at the customer's home. Pedal & Pump also sells accessories such as lights, locks and helmets, and every repair is guaranteed for three months.

Dev promotes the business by running a free bike-check event at a local school each September and by sponsoring a junior cycling club, whose 40 members wear shirts with the shop's name on them. He has 300 followers on social media.

Customers tell Dev that they like the three-month guarantee and that he always explains what he has done to their bike. However, since the mobile mechanic started, the number of services booked at Pedal & Pump has fallen from an average of 38 a week to 26 a week.

Dev is considering two options to win customers back.

Read the following extract carefully and then answer the questions that follow.

Extract A: Fern & Fettle

Rosie Clarke is a sole trader who makes chutneys and preserves under the name Fern & Fettle. She rents space in a shared kitchen in Keswick and sells her jars for £4.50 each at farmers' markets across Cumbria every weekend, as well as through her website.

The shared kitchen is now too small and Rosie must move. She has found two possible locations.

Option 1: A unit on a rural business park 8 miles outside Keswick. The rent is £450 per month. The unit has three times the space of the shared kitchen and parking for delivery vans. It is less than a mile from the fruit farms that supply Rosie's damsons and apples. Almost no members of the public pass the business park.

Option 2: A shop unit on Keswick high street. The rent is £1,100 per month. The kitchen at the back is smaller than the unit on the business park, but the shop front faces a street where around 2,000 tourists pass each day in the summer. Rosie would be able to sell directly to customers six days a week. Deliveries of fruit would have to be unloaded on a busy road.

Rosie has savings of £6,000 and no bank loan.

Read the following extract carefully and then answer the questions that follow.

Extract B: Bramble & Bee

Ellie Marsh started Bramble & Bee in Norwich in 2019. She hand-pours candles using rapeseed wax grown on Norfolk farms instead of the paraffin wax used by most large candle makers. Every scent is named after a Norfolk place, and each candle is poured into a glass jar that customers can return for a £2 refund.

A standard candle sells for £16 and a large candle for £26. This is around £4 more than similar candles sold in national gift shops. Ellie employs one part-time assistant.

Bramble & Bee sells through three independent gift shops in Norfolk, at craft fairs, and through its own website, which Ellie launched in 2021. She promotes the business with photographs of the Norfolk countryside on social media three times a week and sends a weekly email to 1,900 customers.

Table 2: Bramble & Bee sales revenue by channel

Sales channel	Year 1 revenue	Year 2 revenue
Craft fairs	£14,200	£12,800
Own website	£9,600	£18,400
Norfolk gift shops	£7,400	£8,100

Ellie believes it is the candles themselves that make Bramble & Bee successful. Her assistant thinks the business has grown because of the way it is promoted and because customers can now buy online.

Read the following extract carefully and then answer the questions that follow.

Extract A: Paws & Claws

Jess Okafor and Sam Reid run Paws & Claws, a mobile dog grooming business in Leicester. They set up as a partnership in 2021 after both leaving jobs at a veterinary practice. Each of them drives a converted van fitted with a bath, dryer and grooming table, and visits customers at home. A full groom costs £48.

Last year Paws & Claws had revenue of £96,000 and Jess and Sam each took £24,000 out of the business. They now turn away about 15 bookings a week because they are fully booked for six weeks ahead.

To take these bookings, they want to buy two more fitted vans, costing £38,000 in total, and employ two trained groomers. Neither partner wants to borrow the full amount from a bank. They are considering two options:

• Option 1: take on a third partner, a former colleague who would invest £40,000 and work in one of the new vans.
• Option 2: convert Paws & Claws into a private limited company and sell shares to family members to raise the £40,000.

Jess and Sam agree on almost everything, but both are nervous about the £38,000 cost of the vans and about who would make decisions in future.