1.2 Business Planning Practice Questions

This question is about business plans. You do not need to refer to a particular business in your answers.

Text 1

Dunmallow Cycles

Dunmallow Cycles is a new business set up by Hamish Corrie in a small market town. The business will repair bicycles and hire out electric bikes to visitors. Hamish has £9 000 of his own savings but needs a £15 000 bank loan to buy tools and six electric bikes.

Before meeting the bank, Hamish spent three weeks writing a business plan. It included market research showing that 140 000 visitors come to the area each year, a list of the resources the business will need, a cash-flow forecast and the forecast revenue shown in Table 1.

Two other cycle repair shops already trade within five miles of Hamish's new unit. Hamish's friend thinks that writing the plan was a waste of three weeks.

Table 1 – Dunmallow Cycles: forecast revenue

Year	Forecast revenue (£)
1	52 000
2	61 750
3	71 500

Text 1 — Hollowtree Cycles

Hollowtree Cycles is a bicycle shop owned by Marcus Dillane. The shop sells new bicycles and carries out repairs in the market town of Ashfield. Marcus employs three members of staff.

Marcus wants to open a second shop in Netherby, 12 miles away, and to begin hiring out electric bikes to tourists. He has estimated that the new shop will need £40 000 for the lease, tools and stock. Marcus has £9 000 of his own savings and has asked his bank for a loan of £31 000. The bank has asked to see a business plan before it makes a decision.

Marcus has not written a business plan since he started Hollowtree Cycles eight years ago. He thinks that writing a new one would take him around 50 hours — time he would normally spend repairing bicycles.

Hollowtree Cycles' revenue is shown in Table 1.

Table 1: Hollowtree Cycles' annual revenue

Year	Revenue (£)
2022	148 000
2023	162 000
2024	185 000
2025	203 500

Hussain Pottery

Rosa Hussain, aged 29, works as an art technician in a secondary school. She plans to leave her job to open Hussain Pottery, 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.

Rosa has £10 000 of her own savings and is applying to a bank for a loan to cover the rest of the start-up costs.

Start-up information
Total cost of starting the business	£24 000
Cost of the kiln	£9 000
Rent on the unit	£900 per month
Bank loan applied for	£14 000

Before applying, Rosa surveyed 120 local people. Of those asked, 68% said they would pay £35 for a taster class. The two other pottery studios within 10 miles only sell finished pottery.

Rosa has written a business plan. It sets out 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.

Bellaria Coffee

Priya Shah is a sole trader. For the past four years she has run Bellaria Coffee, a mobile coffee van that she parks at business parks and weekend markets in the town of Bramfield. She works six days a week and does not employ anyone.

Priya now wants to open a permanent coffee shop in Bramfield town centre. She will need a bank loan of £45 000 to pay for the lease, the fit-out of the shop and a new coffee machine. The bank has told Priya that she must send a business plan with her loan application within six weeks. She could write the plan herself or pay a business adviser £600 to write it with her.

The shop will be open from 7 am to 6 pm, which is longer than the van operates. Priya will need to recruit three employees, two of them part-time. She has never recruited or managed staff before. She has based her forecasts on the sales of the van. A national coffee chain will open a branch in Bramfield next year.

Forecasts for the first year of the shop
Customers per week	900
Average spend per customer	£4.50
Variable cost per customer	£1.30
Total fixed costs per year	£86 000