1(a) What is meant by the term random sample (line 34)?
The term random sample means a part of a population chosen for investigation without following any specific scientific pattern. The elements of the sample are chosen without following a definite pattern.
1(b) State the formula for calculating ‘market share’ percentage (line 50)?
Market share percentage=
1 (c) Tom believes that the level of spending per visit by his customers will stay the same in 2011 and 2012. Based on the information in the case study, how many customers is he anticipating in 2012?
Number of customers expected=8350 customers.
1(d) Tom expects variable costs per customer visit to fall by 10% between 2011 and 2012. Calculate the change in his break-even number of customers between 2011 and 2012 as a result in this fall in variable costs.
At the break even point: value of sales = variable costs
Variable costs expected for 2011: £5.10×7700=£39270
Number of customers required to make sales of £39270:
= 2517 customers.
Variable cost in 2012 expected to reduce by 10%:
Therefore: ×£39270 = £3927
Variable costs expected for 2012: £39270-£3927 = £35343
Number of customers required for sales of £35343:
Change in number of break even number of customers between 2011 and 2012:
2517- 2266=251 customers.
1(e) Explain two problems that Tom might face as a result of moving away from his original niche market.
Higher competition: moving to the city centre means that the salon will face increased competition from other salons operating under other franchises like Toni and Guy which are located in the city centre.
Increased costs: moving to the city centre means that some costs previously not incurred will have to be incurred. An example of these is the high rent cost that Tom will have to incur by renting a salon in the city centre.
2(a) Analyse the benefits of Joshua protecting its business ideas and products.
Joshua benefits from exclusive use for commercial gain of the protected business ideas and products. This means that all the commercial benefits that can be gained from the products and ideas accrue to the Joshua franchise only.
Business ideas and products that are registered cannot be used by competitors of the business. This reduces competition and increases the profit margins for Joshua..
The rights to a registered business and ideas and products can be sold to other parties. Joshua can make financial gains by selling the ideas and products to other businesses that may want to use the product or idea.
Since Joshua can either have exclusive use of the idea or product or sell it, recovery of the costs incurred for the developing of the idea or product can be recovered. The business thus avoids loss that may result from unrecovered costs of developing the business idea or product.
Joshua has the right to take legal action against those parties that may infringe on its legal rights over the registered idea or product. This ensures that no infringement occurs.
Joshua has an increased appeal to potential investors since investors prefer to invest prefer to invest in ideas or products that are registered since they offer potentially high returns.
2(b) Was Joshua right to insist that Tom located his salon in the city centre? Justify your view.
Joshua was right to insist that Tom located his salon in the city centre. This is because the city centre offered more opportunities in terms of:
Increased number of customers in the city centre
There is increased number of customers in the city centre as compared to the shopping centre that Tom intended to operate. It is established that there are 50% more customers in the city centre than there are in the small shopping centre.
Higher prices in the city centre
The customers in the city centre are expected to pay higher prices than the original customers in Tom’s niche market. This makes it more attractive to locate the salon in the city centre.
Increased customer base
Locating the salon in the city centre means that an increased customer base will be available unlike the original Tom’s niche market which was only composed of children hairdressing.
2(c) To what extent do you think that Tom’s cash flow forecast will help to guarantee the success of his Joshua franchise?
The cash flow forecast will enable him to anticipate cash shortages in the future that may be inconvenient or even disastrous to the salon’s operations. This guarantees the success of the franchise since cash shortages that may imperil the success of the franchise are anticipated and avoided.
Cash forecast will enable the anticipation of cash shortages. This will enable Tom to plan for effective financing of these deficits and avoid collapse as a result of cash shortages.
The cash forecast can be used to obtain financing for the franchise. The forecast enables potential financiers to know whether the business has the ability to repay debt financing.
The cash forecast will enable Tom to anticipate any surplus in the future cash flows and thus make it possible to plan on how to reinvest the surplus in cash. This will enable the avoidance of opportunity costs that may result from idle cash resources.
The cash forecast will act as a benchmark from which performance of the salon can be gauged. Tom can compare any deviations of the actual cash performance from the forecasted cash flow and identify any areas of weakness that can be improved on.
Blackwell, E. (2008). How to Prepare a Business Plan. London: Kogan Page.
Abrams, R. & Kleiner, E. (2003). The Successful Business Plan: Secrets and Strategies. Palo Alto, CA: The Planning Shop.