A/S Business Studies Homework for 08.10.12

Dave’s Health Food Shop (2)

 Dave Murphy had been thinking about setting up a health food shop for three or four years.  Many of his family members and friends cautioned him against such a risky move.  They argued he would be foolish to resign from his secure job in retail management in order to be an entrepreneur running his own enterprise. They pointed to the high failure rate of start up businesses, the intense competition from the major supermarkets, and the fact that he would be risking his hard earned savings. 

One of his closest friends suggested that if Dave was determined to set up in business he might consider buying a franchise, since this would provide Dave’s shop with the benefit of a well known name, and guidance on operating the enterprise.  His other friends also pointed out the need to borrow money to finance the venture, and the fact that this would impose a liability on the business in the form of interest payments.

Dave listened politely to these well meaning friends, but he was determined to set up his own business enterprise.  He also rejected the idea of setting up a franchise.  He decided to establish his shop in the town of Westleigh.  Although Westleigh had branches of two of the major supermarket chains, it lacked a specialist health food store.  Dave felt he could occupy a gap in the market and, with a suitable location, would prosper in this niche.

Dave found a suitable location for his shop which he intended to lease.  He knew that he would have little difficulty in recruiting staff and had sufficient contacts in the retail trade to obtain the stock.  All he needed now was a bank loan of £30,000 to start the business.

Dave submitted his loan application to this bank manager.  The application contained a well written business plan, including cash flow forecast and budgeted accounts.  Dave’s forecast for the first year of operation showed the following:

            

	£000s
Sales revenue	66,000
Cost of sales	20,000
Labour costs	19,000
Other expenses	12,000

The bank manager was impressed by Dave’s qualifications and experience, and by the formulation of objectives and strategies for the business.  “I am pleased to see your emphasis on adding value and your identification of a niche in the market.  This should increase the chances of success in this venture” said the bank manager.  “However, your market research is the weak element in the application.  It is entirely based on secondary sources.  You do need to undertake market research to collect primary data using a valid sampling method.”

1.   Analyse the benefits of a business plan for Dave and his new health food shop. (10 marks)

Advice from module 2 students:
Always start with a definition.

Two or three benefits explained as fully as possible
Remember phrases such as 'a consequence of this would be'.

Think arrows:

Module 1 students add:

You must try and develop a chain of argument. No evaluation required for the 10 marks question.

2. What market research techniques should Dave consider in collecting primary data? Justify your view. (15 marks)

Always start with a definition, (you have a choice).

Explain two or three techniques including a possible sampling method in relation to Dave and his proposed health food business in Westleigh.

'Justify your view' means you should explain why each technique is most appropriate and why. Doing this should gain you evaluation marks.

Based on: APT’s Qualified Questions for AQA GCE Business – AS U1: Planning & Financing a Business – Sample. Visit: http://www.apt-initiatives.com/