3 Background on business.
3.1 Background on my business idea
I have decided to set up a Snooker centre because I have recognised the interests of both the youth and the adults in snooker, I have talked to many people in my community about this and they have said that it would be a radiant idea as the local community can have a snooker centre that is close to them, although there are many other snooker centres within the Batley area. The local community seem to have a great deal of interest in this idea so it would be a worthwhile idea to set up a fast food bar within the snooker centre.
3.2 Why people set up in business?
3.1 The main aim of starting a business is to maximise the profits, this will help them to grow and generate more profits. People may also set up in businesses to pursue an interest or be able to work independently. Some people started up their businesses based on their training and work experience. Their expertise can help them get their businesses off the ground.
3.3 Business planning
A good business plan can be useful in organizing your thoughts and giving you a clear idea of where you're headed. Also, if I need financing from a bank or other financial institutions, I will have to prepare a business plan to apply for a loan.
A well processed business plan will help with profiles , this outlines your financing needs and sets out your assets and liabilities. It should be realistic and achievable and have well-defined aims by which to evaluate your progress. It must include:
- the business proposal, its goals and how you plan to achieve them;
- market analysis — who are your suppliers, customers and competitors;
- your budget and financing, cash flow and anticipated profits; and
- time lines and schedules.
4 Findings
4.1 What is a Market?
A market is where the sellers meet the buyers to exchange money for a product of service. The term “market” is actually used to describe the people whom the product is sold to. This does not always involve face-to-face selling; it could sell over the television and the Internet. For a shop there can be different markets, e.g. domestic, leisure.
Mass markets or Niche markets?
Mass market- this is where a business offers almost the same product and promotes it in the same way to all consumers in a large market. Football is seen as a mass market product, as it is played by people from all demographic and geographic segments. Snooker is in a niche market, it has a small number of customers and is mainly used by males.
Advantages
∙ It offers firms high level of sales, which can reduce the costs of making each product.
∙ Mass-market products can often lead to global marketing, this can generate high levels of sales, and thus mass marketing gives the opportunity of competing globally.
Disadvantages
∙ Higher profits are not always guaranteed because there might be a lot of competition, therefore the business might have to lower prices to pursue customers but in return get less profit.
∙ The mass-market product might be in decline phase of its product life cycle, which means that it won’t generate profits because the demand for the products will fall.
Niche Marketing
This is where a business targets a small group within a segment of a larger market. Businesses will base this on gaps in the market and exploiting them, finding the customers needs and fewer customers in a certain market.
Advantages
∙ Understanding and manufacturing a product to the customers needs will generate profits.
Disadvantages
∙ The cost of production is often too high in niche market products.
What market I’m I aiming for.
I will be in a niche market, whilst there are other businesses in the area, we are all focusing on a small range of customers who enjoy this leisure interest. A niche market will allow me to focus on this customer group and satisfy their needs by providing them with the facilities they require. There are few, if any large firms operating in this market, so I will be in competition with small firms.
4.1.1 Consumers
Consumers are very important to businesses, as they are individuals or households who buy and utilize the products or services of a business.
The business has many responsibilities to satisfy the customers;
∙ The business has to supply high-quality products that are well designed and durable and at fair and reasonable prices, this also includes offering services such as arcades in snooker clubs.
∙ Businesses have to offer high-quality customer service, this includes
× Good – value products and services
× Clear and honest information about products
× After-sales service
× Dealing quickly with enquiries
× Help with specific issues
Businesses can have many immediate benefits from having excellent customer services, the business can win new customers also it can help a business keep market share. Businesses can also acquire long-term benefits such as improvement of the image of the business, the business can keep existing customers and enjoy rising sales and profits.
Consumers are important to a business because they generate money into a business buy purchasing the products, also consumers can help the business with market research to implement changes in a business based on consumer responses.
- The Age I will be looking to target my recreation services will be focused between 10-31year olds.
- The majority of the people live in Batley and Heckmondwike. I also have some customers living in Dewsbury or other areas in Kirklees.
- The Number of consumers saying yes that they will play snooker/pool/arcades is 45, 2 said they may buy from the business and 3 people said they would not play snooker/pool/arcades.
- The percentage saying yes they will play snooker/pool/arcades at the new business is 90%, 4% of the people said they may play at the business and 6% said they will not play Snooker/pool/arcades at the business.
- The total population of is 48,000. Out of this figure 38,700 said yes and 1720 said maybe.
- To work out the potential market I will have to use the 90/30 rule for both the above figures.
After doing the calculation the actual people saying yes is 38430 and maybe is 516.
The above figure saying yes is possibly a realistic figure but on the other hand the number of people saying maybe is unrealistic or the figure may be too high. This is because people will use other Snooker centres than my business alone.
- To get a more realistic figure I will divide the number of population saying yes by 100 and then multiply it by 90, which comes to 38,847 and I will divide the number of population saying maybe by 100 and then multiply it by 30 which comes to 154.
- After this the number of people saying yes and maybe is added together, which comes to 35000.
- On average 35000 customers will use the business, on average 3000 customers will use my business each month.
- On average a customer will spend £3.00 on each visit.
This will give annual revenue of £105000 and revenue of £8750 each month.
4.1.2 Competition
Competitors are other businesses in the same market who are pursuing the company’s customers by using marketing techniques.
All businesses face competition. Competition can be local/regional, and national competition.
Local/regional competition
These are rival firms within a few kilometres offering an opportunity for customers to switch from one business to another. Local competitors are common in leisure organisations, such as pubs and restaurants, selling mainly to local customers.
National competition
A business has national competitors if firms in other parts of the UK are competing for the same customers. Both small and large businesses can face national competitors. Professionals such as accountants, Banks and Manufacturing firms can face national competition.
How competitors influence businesses?
The business might have to lower prices because of competition this will degenerate profit levels, if the business doesn’t lower the prices they will lose existing customers. Businesses, which sell superior products to their rivals, will sell more. Business, which has sufficient funds for promotions, will sell more products or services than businesses, which have no funds.
Below I have listed all my Competitors,
Chalks Snooker & Pool Room
25a-37, Commercial St, Batley, West Yorkshire WF17 5EP
Tel: 01924 445714
4.2 Location
Location is the general area selected for a particular site. Locating a business is the most significant decisions managers have to take. When making a decision managers have to take account that decisions are strategic as they are long-term and can have impact on the whole business. The decision can’t be reversed easily because businesses can incur heavy costs because of relocation.
Site is the place selected for the operations within a location; therefore choices are based on qualitative and quantitative factors.
The Quantitative factors are:
Site and Capital Costs; These are costs such as fixtures and fittings of a shop; these vary from region to region. Also there are variations in costs for different areas for example a prime high street location might be costly than a small suburban shopping centre. Businesses will look into cost factors and search for the cheapest location.
Labour costs; These can vary from region to region, partly influenced by local employment rates. This may because of the demand of products. Businesses will look for areas with low wages and salaries, locations with available workers and employees with the right skills.
Transport Costs; Materials and components may need to be shipped in and finished products may need to be distributed long distances. Therefore, the neatness of component/service providers and the major markets may be very important factors.
Nearness to Suppliers; businesses need to choose locations near suppliers. If transport and distance problems make this difficult then this will add further costs.
Sales Revenue; may depend directly on location. Businesses that are located on busy roads or in town centres will generate more sales revenue. Businesses that are convenient to customers to customers can also be a big factor.
Government Grants and Incentives; Government incentives such as low cost land, tax incentives or grants are sometimes used to attract large businesses to invest in a particular location. This is known as the pull factor. There can also be a push effect where governments or Councils block planning permission in certain locations to push towards desired sites.
The Qualitative factors are:
Local Infrastructure; The transport systems in the area for moving goods and access for staff will have an impact on the investment decision.
Quality of life; Businesses may want to attract workers and possible suppliers to the area, the business will need to examine local housing, schools, shop sport clubs and transport systems.
Safety and Environment requirements; In some areas dangers to the local community may mean selecting a different location. Environmental restrictions may also impact on the site, for example the Government are trying to limit construction on out of town sites and are in favour of using existing sites.
The Availability and suitability of the workforce; Worker skills, the level of unemployment may all need to be considered when making a location decision.
Competitors; The amount of competitors will need to be considered as this can affect the sales revenue of the business.
Size of property; The size of a location is a big factor because if there isn’t considerable space to store the products there is no point buying the location. Also the location needs to have parking space for the customers.
Both qualitative and quantitative factors will be considered when I choose my location.
Consumer views on Location
Where do you think our Snooker Centre should be opened up?
After undertaking Primary research I have found out that the majority of the consumers are indicating that they want the Snooker centre located in the Staincliffe area in Batley.
When looking at locations I will look at key features that will suite my business.
✓ Rent/costs, this is very important as I will need to keep all of my costs (fixed and variable) as low as possible. If I am able to achieve this it will mean I will get a higher profit.
✓ Space
✓ Time scale (does the property have room to expand)
✓ Accessibility will be the main factor deciding the location. I will need to be in a location which will be easy to access by customers.
✓ Workforce
✓ Population size- the greater the population size it will mean the greater the sales revenue.
✓ Suitability (does the location have all that is required)
location
4.2.1 Business Sectors
Businesses in the primary sector grow crops or extract raw materials. This sector includes agriculture, fishing, forestry, mining and quarrying. Businesses in the Secondary Sector are involved in manufacturing and construction. Manufacturing -involves converting raw materials into finished goods, such as making Snooker tables. Construction includes, for example building houses. The tertiary sector is also called the service sector. The sector includes retailing, which is the sale of goods; Client services examples of this are financial services, health care, leisure and sport and Internet access. Lastly other services include transport and communication services.
The primary sector resources I will use in my business are;
Timber - for Snooker tables, fixtures and fittings.
Cloth - For Snooker tables.
Food - meat, spices, potatoes, cooking oil.
The Secondary sector resources I will need for my business is the weekly supplies of food and drinks. The products I am going to sell to the customers are, Burgers, chips and Pizzas. Other foods I will serve with the products will be salt and vinegar and sauces. Also forks, tissues and packaging will be purchased to serve with the products. All the suppliers are located within the Batley area so the cost of transporting the supplies isn’t a big factor.
My business is in the tertiary sector as it offers customers leisure and entertainment services. Also it is Secondary business as it makes and sells takeaway food.
4.2.2 Suppliers
A supplier is any business that sells goods to another business or an individual. The suppliers have a large interest in a business as they want continuous contracts with the business because businesses generate the sales revenue for the suppliers. Businesses have to comply with suppliers with the bills, otherwise the business will loose the supplier, also it is the same for the suppliers they have supply quality products every time.
Below I have summarised all the food products I will need for the business.
Prices for frozen Burgers
I will purchase the burgers from Frozen Delights as they are the cheapest and the quality is very good.
Price for Baps
Grantham’s Bakery Price £3.50 for 30
Price for cheese slices
Tesco price £40 p for 10 slices
All products below purchased from Mullaco foods Batley
Salad price £3.00
Tomatoes Price £2 per box
Chilli sauce price £4.00 for 3 litres
Tomato sauce price £3.00 for 3 litres
Mayonnaise Price ££3.50 for 2 litres
Chips Price £6.00 for 4.5 kg
Chicken Price £10.00 for 15 fillets
All the ingredients will be purchased from Saville Town Food Cash and carry approximately 1 mile from Batley.
Base flour Price £4.00 for 10kg
Mozzarella Cheese Price £5.00 for 2kg
Tomato sauce for Pizza base Price £3.00 for 2kg
Donner meat Price £7.00 for 5kg reel
Chicken Tandoori sauce Price £4.00 for 3 litres
4.2.3 Timing is the lead time (re-order time) for any stocks, Stocks is any materials and goods owned by a business either waiting to be used to produce goods or services, or finished waiting to be delivered to customers.
Stock
Businesses need to manage their stocks to ensure efficient production and sales. Therefore there are two levels of Stock Control Minimum stock levels and Maximum Stock levels.
Minimum stock levels, This is where the business stocks the least amount, if businesses use this process then there is a danger that the raw materials will run out before the next delivery arrives.
The minimum stock level would create a number of factors, at Stoney’s
∙ The orders for pizzas, burgers, chips might be uneven, this means that orders will fluctuate from time to time, therefore on some occasions if there is a lot of demand for the food my business will loose out on sales because of the lead times for deliveries.
∙ The suppliers might be unreliable on some occasions, the suppliers might have problems in deliveries this will mean that the business will suffer because they can’t sell the products because of shortages in raw materials. This will mean Stoney’s will need raw materials for emergencies.
∙ Stoney’s can’t hold high levels of cheese and groceries because they will deteriorate within a few days.
Maximum stock levels
The maximum stock level is when the business holds the largest amount of stock.
The maximum level of stock is determined by a number of factors,
- The ability to hold high levels of stock within a business this might be stored in a warehouse.
- The business might predict a number of sales in a month and buy a certain amount of stock for that month.
At Stoney’s I will have manage the stock efficiently to reduce costs and stock wastage, therefore I will use a method of stock rotation. This process includes using the old stock first so it doesn’t perish, if new stock is used before the old stock then eventually the old stock might deteriorate.
At Stoney’s I will have to minimise stock wastage, stock might be used inefficiently or wasted in a number of ways, therefore I will have to look into theses factors when I start up my business,
- Workers may use too many ingredients whilst making products.
- Poor production of food, this may result in complaints from the customers, therefore the food will have to be thrown in the bin.
- The stock may be stolen by customers or staff so security will be vital.
4.2.4 What is Quality?
Quality has a number of meanings when interacting with customers. It can be a number of things, it could be
Value for money, this means that customers would consider quality products at low prices as a good quality service.
A superior product, this is where products are clearly superior than other products, for example BMW and Gucci are perceived as superior in quality than other mass market brands, this is achieved by businesses by using marketing techniques. This superiority could be achieved at my business by producing high quality food.
A consistent product, this could mean that standards are implied in my business such as zero defects this is where the number of faults produced in the food is zero, Customers would consider consistent faultless products as a quality product. Also the quality of the product might be might be set by standard agencies such as food standards ensuring food is fit for human consumption, the cafeteria at my business will have to be certified every 6 months so that the customers are satisfied with the service.
Good service, customers would consider clear and honest information as quality also many after sales services given by companies are also known as a quality service for e.g. repair services.
Traditional quality control systems
This system involves checking products after they have been manufactured to make sure they meet agreed standards. Quality control takes place so that the products are of sufficient standards to meet the needs of the customers. If the work is not satisfactory then the product is scrapped.
The quality system has many drawbacks one of these is that the quality of the product tends to be poor because the product is checked after it has been made. Also the costs are increased because of wastage and rectifying faults that are incurred during production.
Another method of improving quality within a business is quality assurance this is where the product is ensured during stages of production. One of the systems in quality assurance is total quality management. This system involves all workers working together to improve the quality of products. The process examines quality in every area starting from the design of the product to the quality of the raw- materials, also the quality is checked by employees after every process in the production line, this means that employees are given responsibilities to ensure quality and standard of the products. This process is convenient for large firms as this will result in fewer faults in products and this will reduce costs.
At Stoney’s I will make use of the quality assurance systems, the employees will be trained to check the quality of the product after every stage of production, for E.g. if the bread or cheese is faulty it should be set aside and reported to me so that I can send it back to the suppliers, if however something gets burnt for some reasons then it should be thrown away. All the employees will need to ensure this whilst making the food at all times to meet the customer needs. If the customer has any complaints about the food then the customer will be replaced with another product. If the customer has complaints with the arcades or the snooker tables then the, complaint will be dealt by the owners, the situation will be assessed and then the products will be changed or sent for repairs.
Importance of quality at Stoney’s
Quality in every area is essential for my business; poor quality can lead to loss of customers to rival businesses. Poor quality will increase costs because returned products will have to be repaired or thrown away, this will increase costs and lower profits.
4.3 Resources needed
4.3.1 Physical Resources
Here I have listed all the physical resources I will need for my business,
- Snooker/Pool Tables
- Snooker/Pool lights
- Bar Stools
- Fixtures and fittings
- Property
- Till
4.3.2 Human Resources
At Stoney’s I will require three employees, I will require two employees to make the food and one employee who will have a part time cleaning job, for this I will have recruit the staff. I have constructed job descriptions stating the specifications required from employees, after this I will advertise through different mediums.
I will have to advertise the jobs so the public know there is a vacancy, I will advertise through many ways, they are
∙ Local or National newspapers
∙ Specialist Magazines
∙ Journals
∙ Internet
∙ Supermarket boards or Shop windows
Another method of job advertising is through the job centre, which is a centre run by the government.
After going through the advertisement the applicant will have to phone my business, and the applicant will be told to send me a CV, a short document giving information about the person and information on any previous job experiences. After this the applicants will be called for an interview.
At the interview the applicant will be asked various questions on why he wants this job and if he has had experience in doing this job. Also the applicant will be given the chance to ask me some questions on any queries. The applicant will be asked to prepare some food also so I can see if the applicant is capable for this job. Then the applicant may be appointed if he or she is suitable.
As a Business owner I will have comply with many employment laws whilst recruiting and selecting employees.
The Sex Discrimination Act 1975
The Race Relations Act 1976
The Disability Discrimination Act 1995
4.3.3 Financial Resources
In this section I will state all the payments I will have to make when I start up my business. These Financial resources will go into the Cash flow Forecast.
Capital Expenditure is the amount used during a particular period to acquire or improve long-term assets such as property, plant or equipment.
I will need to buy many assets for my business; they will be needed for producing the food and other leisure services such as Snooker and pool tables. Below I have listed all the assets.
Snooker Tables
12ft Sovereign Snooker Table
The DPT Sovereign 12ft Snooker table is manufactured using only the finest raw materials and selected hardwoods for the frame and cushions. UK cut Precision 3/4" slate bed covered in 6881 Strachan West of England 100% pure wool napped cloth. This table comes with northern rubber and block cushions as standard for the ultimate in game play. Made in England to traditonal English snooker specifications.
8x Solid turned Mahogany legs. Ball collection runners. Mahogany rails and cabinet. Brass extention racks. Brass leather capped netted pockets.
All accessories included; 2x 52" cues, Triangle, Snooker balls and snooker scoreboard. UK delivery is included approx 10-14 days.
I will purchase six 12 foot Snooker tables from Leisureaccesories.com, I have chosen this company as it provides good quality products and also the company delivers the products to the business.
6ft Slate Bed Pool Table
Jaguar Classic Slate bed pool table. 6ft x 3.5ft. A quality high grade slate bed with clean light beech finish cabinet and blue craftsman laid cloth nap. Aluminium edged table tops and pool league competition grade cushions. 4x fully adjustable chrome feet. Ball collection and return pocket. This pool table is 374kg and offers smooth ball running which is true to slate bed tables. Sold to domestic as well as many commercial customers, a secure coin meter option is available fitted for an additional £272.
Classic design comes with 1 year warranty and full American pool kit including 2x 48" American ash pool cues, spots and stripes 50mm pool balls (or reds yellows) chalk, rest and triangle. UK ground floor delivery is included and is approx 10 days including set up.
I will purchase two 6foot pool tables from Leisure accessories.com
Lights
Metal & Brass Pool & Snooker Table Lights
Pool or Snooker table lights. Available in Green or Blue. Traditional Green conical shade snooker table lights. 3x metal cone bulb bays for excellent table light projection, 240v ready to install with brass hanging chains 4'x 2. Capped Brass plated hanging bar. These are commercial grade lights. Standard 240v UK fittings supplied. 12mth guarantee. Up to 7ft feet long or use two sets of lights inline to cover up to 12ft snooker tables. Includes all required fittings. Uses standard 60w bulbs. UK delivery approx 3-8 days.
I will purchase eight table lights; one light will be placed above each table.
Bar Stool Purchased from Ikea
Price £7.95
I will purchase twelve Bar stools for customers to sit on whilst they are eating, and for general seating. This cost will be included in refurbishments.
Revenue Expenditure
Includes amounts spent on assets that are used up in a short amount of time. For example, rent, insurance, depreciation of fixed assets, repair and maintenance costs etc.
There are two types of revenue expenditures, direct and indirect costs.
Direct costs are linked with the production or service provided.
The direct costs incurred within my business are:
∙ Stock – This is a direct cost as it is linked to the production of food. I will have to pay £37,230 approximately on stock over the year. I predicted the stock level by looking at the monthly sales I have purchased enough stock so it could last the whole month.
∙ Bills – I will have to pay £250 on Gas and electricity bills every month. I looked at the rates and then predicted how many kilo watts I will consume in a month. The Bills are indirect costs as it is determined on how much the business consumes over a period.
∙ Arcade games rent – this is a direct cost as the rent is linked to service that is going to be provided at Stoney’s. I will have to pay £2000 every six months.
Indirect costs are sometimes called Overhead costs which cannot be linked directly to the production.
The indirect costs incurred within my business are:
∙ Rent – I will have to pay £500 rent on the property, monthly, this is an indirect cost as it does link with the production.
∙ Loan Interest – I will have to pay £41.29 loan interest on the £15000 I have borrowed from the bank. Again this isn’t linked to the production.
∙ Loan Repayments – I will have to pay £312.50 on loan repayments I will have pay it monthly.
∙ Wages – I will have to pay £20,160 on staff over the year. This is an indirect cost because the wages have to be paid even if there’s no production.
∙ Sundries – I will approximately spend £50 every month on day to day expenses of the business, this is an indirect cost because it isn’t linked with any production.
∙ Deposit on property – I will pay £1000 on deposit for the property in the first month. This is an indirect cost because I will have to pay in order to do business in the property.
∙ Marketing – I will spend £400 on advertising, this is isn’t a direct cost as it’s spent for the advertising of the whole business, it doesn’t correspond with any production.
∙ Depreciation – This is the loss in value of my businesses assets over a period of time. The calculation I used to work out the depreciation is,
Cost of asset- the resale value
Working life in years
I calculated the Depreciation of my business assets they are;
Refurbishments - Cost £10.000, Depreciation = 1583 Net value = 8417
Snooker & Pool lights – Cost 480, Depreciation = 95 Net value = 385
Snooker &Pool Tables – Cost 16000, Depreciation = 1200 Net Value 14800
∙ Drawings – I will take out 700 per month to pay my domestic bills and expenses, again this isn’t linked to production, and subsequently they are my personal expenses.
4.3 Importance of Income and Expenditure
Income and expenditure has major impact on profit, if the income is too low and the expenditure is high then the business will make no profit, however if the income is high and the expenditure is high then the company will be in neither loss or profitable, the company will be break-even this means that the income and expenditure will be the same. If the business has a high income and less expenditure then the business will have more profits. If my business made a lot of profit during a year then the profits can be used for innovation and expansion, also it can be used to buy new equipment for the business also I could use it for my personal expenses.
4.3.1 Income, generally defined, is the money that is received as a result of the normal business activities of an individual or a business. For example, most individuals' income is the money they receive from selling their products or services.
I changed the sales figures from month to month because they fluctuated because of seasonal factors.
My annual income from Snooker/pool is £103,524 and my monthly income is £8.627
- The Age I will be looking to target my fast food area will be focused between 10-31year olds.
- The majority of the people live in Batley and Heckmondwike. I also have some customers living in Dewsbury or other areas in Kirklees.
- The Number of consumers saying yes that they will eat at the fast food area is 40, 7 said they may buy from the business and 3 people said they would not eat from the fast food area.
- The percentage saying yes they will eat from the new business is 80%, 14% of the people said they may eat from the business and 6% said they will not eat from the business.
- The total population of is 48,000. Out of this figure 38,400 said yes and 6720 said maybe.
- To work out the potential market I will have to use the 90/30 rule for both the above figures.
After doing the calculation the actual people saying yes is 34560 and maybe is 2016.
The above figure saying yes is possibly a realistic figure but on the other hand the number of people saying maybe is unrealistic or the figure may be too high. This is because people won’t eat at the fast food area every time they come to the Snooker centre.
- To get a more realistic figure I will divide the number of population saying yes by 100 and then multiply it by 90, which comes to 31104 and I will divide the number of population saying maybe by 100 and then multiply it by 30 which comes to 605.
- After this the number of people saying, yes and maybe are added together, which comes to 31709.
- On average 31709 customers will use the business, on average 2642 customers will use my business each month.
- On average a customer will spend £3.00 on each visit.
This will give annual revenue from the sales of food is £95,127 and revenue of £7927.25 each month.
I predicted the sales for the arcades from the snooker and pool sales figures; I increased the figures slightly more because I predicted the sales figures would be more than the snooker/pool table sales.
The annual income from the arcades is £16,260, and the monthly revenue comes to £1.355.
4.3.2 Expenditure
This is the amount of money going out of the business. Examples of this would be stock, rent, deposit, loan interest, loan repayments, bills refurbishment, purchase of car, car running costs and the wages. This is shown in the Cash Flow forecast.
4.3.3 Budgets
A budget is a forward financial plan. A sales budget is a prediction of the sales and average price of your product to calculate the revenue for your business, the production budget calculates the production costs for the business.
The above sales budget calculates the sales for the snooker and pool, the sales for the food and lastly the sales for the arcade machines. The plans are drawn up for 12 months and split up into monthly periods. The figures are based on units, this is equivalent to one product or service.
The sales units are determined from the sales forecast this is calculated from the population and questionnaire. The sales forecast for each month came to 3000 for the snooker and pool. I increased and decreased the sales for different months due to seasonal factors and customer trends. In January I predicted the sales at 2500 because the business has just been opened, the sales will be relatively low. In February I increased the sales to 3000 because more people will get know my business, therefore sales level will increase. In March, April and May the sales are predicted to increase to 3318 because more will be familiarised with my business, therefore the sales will increase. In June, July and August the sales are predicted to fall because consumers will go to holidays abroad in this period, therefore snooker and pool sales will rise, also students have summer holidays, this means they will go to holidays with there families and friends. In September, October and November the sales are predicted to rise to 3318. In December the sales are predicted to fall because Christmas is arriving, this means that consumers will spend money on presents.
Thereafter the sales revenue is calculated by multiplying monthly sales £3.00.
After looking at the sales revenue I think that the sales are realistic, however the sales revenue could increase or decrease because sometimes consumers will spend more on playing snooker or pool or they could spend less. Also the sales figures could increase or it could decrease due to poor marketing or qualitative factors, therefore this will affect the sales revenue. Another negative factor of the budget is that the sales units are unrealistic because we cant predict how much money each consumer will spend on snooker and pool, therefore the sales figure and the sales revenue is unrealistic.
The sales figures for the food are based on sales forecasts, this is calculated from the population and questionnaire figures.
The sales forecast came to 2642 units for each month for the food. The sales revenue is calculated by multiplying £3.00 by monthly sales.
All the sales figures are based on seasonal factors and consumer trends like the snooker and pool sales.
The sales figures are slightly less than the snooker sales figures, this is because not every consumer will eat at the fast food area.
The sales revenue does seem realistic, however sales could increase sometimes because people will find it easier to eat from the fast food area than at home, the sales could decrease because consumers have different views. The sales revenue could also increase because consumers might spend more money order they might buy two or three products in one order.
The sales figures for the arcade machines are based on sales forecasts from the snooker and pool tables.
The sales came to 3000 units per month, for the arcade machines. I added 2000 units to this figure because people are likely to play two or three games when they play the arcades, once they loose in a round they will want to play the game again and proceed that round. Like the other sales figures they are fluctuated in different months due to seasonal factors and consumer views. The sales revenue is calculated by multiplying £0.30 (game price) to monthly sales figures.
The sales revenue does seem realistic, however the arcade sales could change due to poor marketing or poor services, due to this sales revenue could be low. On the other hand sales revenue could increase because of good quality service and good marketing, this is a positive factor as it could generate more profits. The decrease in sales revenue could also be because people feel they are comfortable playing games on consoles rather than arcades.
Planning budgets can have many advantages and disadvantages.
The advantages of this sales budget are:
Ÿ Budgets I can help to set targets for the business to work towards
Ÿ Budgets can give a rough idea of how the business is doing, by comparing the predicted budgets with the actual budget
Ÿ Budgets help to allocate money to certain departments that need the money, this helps as then money is used efficiently.
The Disadvantages of this sales budget are:
Ÿ It is difficult to plan future revenue and sales figures, this may be because the external environment is changing for eg people feel they would rather play games on games consoles than arcade machines.
Ÿ The budgets could be very different to the actual figures, the variance could be very far off the predicted figure this makes it very unrealistic and worthless as this will cause the cash flow forecast and the profit and loss account to be inaccurate.
Production Budget
The production budget predicts the production costs for the business. The budget has a stock budget and below this it has production budget where it states the cost of producing a product.
The layout is same as the sales budget. A unit amounts to the stock needed to produce one product.
The opening stock shows the amount of stock available in the business at the star of the month, below this the purchases are shown, this is the amount I will purchase to meet the sales figures, the sales figures are shown below the purchases, this is taken from the sales budget. Thereafter there is the closing stock this shows the amount of stock available to a business at the end of the month,
I have predicted the purchases of stock enough to meet the sales figures and also for any extra sales. I have limited the stock because some of the stock is perishable, therefore this could go to waste if it is left for too long.
Below the stock budget there is the production budget, this calculates the amount I will pay on the stock I will purchase, this is calculated by the price of buying one product and this is multiplied by the purchases in each months. This is transferred into the Cash Flow forecast under Expenditures.
The production budget helps me to calculate the cost of stock I will need to spend over the months accurately.
A profit and loss account helps my business by indicating how it has done over the year
4.3.4 Cash Flow Forecast
The purpose of a cash flow forecast is to project whether or not a business can succeed in the year or potential time ahead of them. It will take into account the profit and losses of a business as well as overheads and sales revenue.
The money entering or leaving a business is called cash flow. Cash inflow is the money that the business receives. Cash outflow is the money that the business pays out. All the inflows and outflows are predictions based on research.
All the cash inflows in my business are;
Loan Capital – this is the money I will borrow from the bank.
Owner’s capital – This is the money I will put into the business, some of this money will be taken from my bank account, which I have saved, and the remaining amount will be borrowed from my friends and relatives.
Sales revenue – This is the money I will receive from selling my products and services, the three sources of revenue I will receive will be from, Snooker/pool, Arcade machines and food.
All the cash outflows of my business are:
Stock – This is the money I will spend on stock over the year.
Arcade games rent – this is the money I will spend on rent for arcade games, I will pay rent every six months.
Rent – This is the money spent on property.
Loan interest – this is the money spent on the loan interest, this is split into monthly payments.
Loan repayments – The money spent on repayments, this is split into monthly payments.
Bills – The money spent on gas and electricity bills.
Purchase of Snooker & pool tables
Wages – The money spent on staff wages
Sundries – money spent on day- to- day expenses
Marketing – money spent on advertising.
Deposit on property
Drawings – This is the money I will take for my own expenses.
After the cash inflows and outflows there is the Net cash flow, this is the difference between cash inflows and outflows. In months where the cash inflows is greater than the cash outflows then the net cash flow is positive. In months where the inflows are less than the outflows then the net cash flow will be negative.
After this the cash flow forecast has the opening balance, this shows the amount of cash owned by the business at the start of the month. Thereafter the cash flow forecast shows the closing balance this shows the amount of cash owned by my business at the end of the month.
Overall looking at my cash flow the Net cash flow is positive over the, Twelve Month period. In the first month the Net cash flow is quite high, this is because a lot of cash is injected into the business in the first month, the sources of cash injected are Bank loans and Personal capital, due to this the Net cash flow is higher in the first month compared to other months. From February to May the net cash flow increases because of increasing sales revenue. From June to August it is decreasing this is because consumers are likely to go on holidays, therefore the net cash flow is less than the previous months. Thereafter in the remaining months the sales the net cash flow increases again, this is because the sales revenue starts picking up, therefore the net cash flow increases. From this I can see that my business has potential to succeed over the year.
Looking at my closing bank balance over the, twelve Month period the balance is increasing every month this means that my business is making considerable amounts of profit each month. We can tell from this that if the costs are increased for some reason in a month then the business will be able to pay the amount and remain with a healthy cash flow.
The purpose of constructing this cash flow forecast is because the bank will want to see how I will finance the business, also the bank will want to see if I can pay the loan payments back. Also the bank can see that my business is planning for the future. Cash flow forecasts will tell a business if my business can survive in the future, if my business cant survive then I will be able to plan ahead and take measures to solve the problem. The cash flow forecast can also help me to choose to go ahead with the business or not.
However the cash flow forecast doesn’t predict the cash flows through my business accurately. This may because I’ am starting up a new business it will be hard for me to estimate the cash flow figures. Another reason my the cash flow will be inaccurate is because of external influences, such as recession in the economy this will cause the sales figures to decrease because consumers wont have enough money to spend in my business.
4.4 Investment appraisal
Investment appraisal is the technique used to assist managers in decisions this will help them see whether or not they should invest in a project. Also they can compare other investment oppurtunities and make judgements from it. In this section i will look at three methods payback, average rate of return, and discounted casflow.
Payback – This is a simple method, which calculates how long it will take me to get the money back, which I have invested in the business. I will be able to use payback to identify the risk involved in the project. The longer the payback the greater the risk involved.
Advantages-
- Simple to understand
- Useful for businesses that require a quick return
- Businesses that are concerned with survival, payback will be the most important.
Disadvantages-
- Ignores money received after pay back
- Some projects with longer payback may be more profitable in the long run
- Stronger firms have an advantage because they can wait longer for payback.
- Risk the loss of future profit
- No account for value for money
Payback for my business-
Money invested into the business is £50,000 I have given £35000 and took a loan worth £ 15000.
From the table above it can be seen that the payback time for the investment is one year.
Average rate of return- is a simple calculation, which shows what the average return will be per year as a percentage of the initial investment.
Advantages-
- It can be used to compare returns on different projects
- Identify how much profit will be made each year.
- Are able to compare profitability with other projects.
Disadvantages-
- No account of the risk involved
- Does not take into account of future value for money.
Step one
Total Return on project – Investment = Average Annual Return
Life of the project
Step two
Average Annual Return = Average return as a percentage of investment.
Investment
The average rate of return for my business is-
£ = £
£ x
£
Net present value- this technique shows that money received in the future will have a lower value than it has today.
Advantages-
- Takes into account of the future value of money over time.
Disadvantages-
- Complicated method
- Wrong discounting factor will give the wrong value.
- All the future inflow is estimates.
£ - £ = £
NPV inflow - Investment = NPV profit
4.4.1 Profit & Loss account
A profit and loss account is a document that has sales revenue earned by the business, the costs of production that the business has paid, thus the profit and loss gained by the business.
The business profit and loss account has the sales revenue, which is taken from the Sales budget. Thereafter the Direct costs are inserted into the profit and loss account, this is the cost of production, which is taken from the production budget. After the direct costs the, less closing stock is inserted, which is the value of the closing stock this is subtracted from the direct costs because the stock hasn’t been used by the business, therefore it isn’t a cost. From this we can calculate the overall cost of sales.
Thereafter the account has the Gross profit, which is the sales revenue minus the cost of sales.
After the Gross profit expenses such as Rent, loan interest, depreciation, bills wages, sundries and marketing are inserted these are also known as indirect costs. Thereafter the total expenses are subtracted fro the gross profit which gives me the Net profit, the net profit is the amount left at my business from the sales revenue once the costs have been paid.
After looking at my business’s profit and loss account the company is making a lot of profit, this gives me an indication that the business plan is worthwhile.
4.4.2 Balance Sheet
A balance sheet records the assets (possessions) and liabilities (debts) of a business at the end of an accounting period. It shows how a business raised its money and how that money has been used.
The above balance sheet contains the fixed assets these are assts owned by my business and are expected to be kept by my business for many years, these assets wont be bought for resale. The Fixed assets of my business are Snooker and pool tables, Snooker and pool lights, and refurbishments.
The balance sheet has the total assets, which is the total value of fixed assets after depreciation is subtracted from the purchase value.
After the Fixed assets the balance sheet has the current assets of my business listed, these are items that the business expects to have for only a short period of time, these assets are likely to be cashed before the next balance sheet is drawn up. The current assets of my business are Stock, debtors, bank, like the fixed assets the current assets are totalled up.
The next section contains the less current liabilities, this is the debts the business will have to pay within a year, the businesses liabilities is the payment to creditors for the stock I ordered.
The next section has the working capital this is the business’s current assets taken away from current liabilities. Working capital will allow me to spend cash on my business.
After the working capital the balance sheet shows the net assets, this is calculated by adding all the assets and subtracting it to the less current liabilities.
The next section has the
4.4.3 Ratio Analysis – is a technique used to monitor the performance of the business. Ratio analysis uses the profit and loss account and balance sheet to see how well the business has done compared to the previous year, help compete with competitors, what factors the company can change to improve the performance and identify weak areas in the business. Investors use ratio analysis to help them make decisions on whether or not they should go ahead with the investment. The ratios are:
- Profitability ratios are used to understand profit, analyse current profit, impact of overheads, make decisions on investment and help to make decisions on how to improve performance. The three different profitability ratios are returns on capital employed, net profit margin and gross profit margin.
- Liquidity ratio is a balance sheet ratio and is used to identify the financial situation of the business. The liquidity ratio is asset test ratio.
- Gearing ratio is an assessment of the sources of capital used to finance the operations of a business. It compares the proportion of capital raised from long-term borrowing and from shareholders.
- Financial Efficiency ratios are used to analyse the use of its resources to ensure they are being used efficiently. The financial efficiency ratios are asset turnover, debtor’s turnover, and stock turnover.
- Shareholder Ratios are used to enable the investor to make the assessment in the business performance and the actual financial return on the investment.
Profitability-
Net profit margin-
Net profit x 100
Sales
Gross profit margin-
Gross profit x 100
Sales
Return on capital employed-
Net profit x 100
Capital employed
Liquidity-
Current asset - stock
Current liabilities
Gearing-
Capital raised from long-term borrowing x 100
Total capital employed
Financial efficiency-
Asset turnover-
Sales revenue
Net assets (TA-CL)
Stock turnover-
Stock x 365
Cost of sales
Debtor collection days
Debtors x 365
Sales revenue (turnover)
Shareholder ratios
Dividend per share (pence)
Total dividends
Total share issues
Dividend yield
Dividend per share x 100
Market price per share
I have calculated the following ratios in my project:
Liquidity:
£ - £
=
Financial efficiency:
Asset turnover:
£ = 4.6
£ -£
Stock turnover:
£ x £ =
£
Debtor collection Days
£ x £ =
£
Gearing
£ x 100 =
£
Profitability:
Net profit margin:
£ =
£
Gross profit margin:
£ =
£
Return on Capital Employed:
£ x 100 =
£
4.4.4 Breakeven forecasts
4.4.5 SOURCES OF FINANCE
4.4.6 Conclusion
4.5 Ownership
There are four main types of business organisation in the private sector:
- Sole traders
- Partnership
- Private limited companies (ltd)
- Public limited companies (plc)
The types of business ownership are:
- Sole traders- a sole trader is a business owned by just one person. The single owner has full control of the business, the decision making and receives all the profits. This is also called sole proprietorship. Sole traders sometimes have other staff working for them. Sole traders unlimited liability- this is where the law doesn’t see the business as being separated from their owners, so if the business runs into financial trouble and are not able to pay their debts then the owners will be responsible to pay for their debts from their personal debts.
Partnership- is the joint ownership of the business by more than one owner. A business can have between 2 and 20 partners or owners. Partners are responsible for making decisions, running the business, sharing the profits and paying any debts. A partnership has unlimited liability and so all partners can help to pay of the debts, limited liability- this where the business is set up in a way so that in the eyes of the law the company is separate from the business owners. This means that if the company goes into debt then the owners are not responsible.
- Private limited companies (ltd) - is the smaller of the two types of limited company. The shares it issues cannot be advertised or traded on the stock market. Any transfer of shares must be done privately. Many Private limited companies are family firms, the company has friends and relatives who run the business.
- Public limited company (plc) – is for much larger businesses. The company must have at least £50,000 of share capital; in a plc the shares are traded and advertised on the stock market.
Below I have stated all the advantages and disadvantage of types of ownership
The type of ownership I have chosen for the business is a Soletrader . This is because i can keep all the profits, and also i can have complete control over the business, i will be able to make all my decisions, another advantage is that i can raise the extra capital i need from family and friend, consequently i wont have to pay interest on the borrowed money.
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