Sweet Success Case Study Questions

Read the case study below and answer the questions.

Susan Shaw and her husband Michael set up Sweet Success as a partnership in 2009. Since the opening of their first store they have grown to 5 stores in and around South East London. The idea to set up the business came from Susan as she felt there was a gap in the market for the old fashioned sweet shops she remembered from her youth.

Susan initially did research on the internet to find out about similar businesses in the
UK. She found a number of businesses in
Northern England and went to visit them to find out about their pricing strategies and the products that they offered. Susan then conducted primary market research in her local area.

The shop opened in Lewisham town centre in the summer of 2009. Susan had contacted local press to assist with her promotional campaign and had been giving out leaflets in the local area. Susan also looked at PR campaigns that she could do to increase the success of the business. She used sales promotions techniques in the first weeks of opening to attract customers to the shop.

After three months Susan felt the shop was running well and she was getting lots of customers. However, Susan was struggling with her finances. She was finding it difficult to pay her bills at the end of each month and was struggling to keep paying suppliers. She decided to apply for a bank loan to help assist her in the early stages and sort out her financial problems. Susan was given a loan from the bank for £10,000 which was secured on her house.

Sweet Success continued to thrive and grow throughout 2009 and 2010. At the beginning of 2011 Susan was considering expanding the business by creating a website.

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Questions

Susan obtained a loan from the bank, define the term “bank loan” (2 marks)

“A fixed sum of money borrowed from the bank that is paid back with interest in monthly instalments” 2 marks

1 mark – if mention interest, or monthly instalments

In the first year Susan earned £92,000 which went up to £110,000 in her second year of trading. Her costs were £68,000 for the first year which rose to £72,000 in the second year. Calculate the amount of profit She made in the first year. (3 marks)

Profit = Total Revenue – Total Costs
= £92,000 - £68,000 = £24,000
Profit = £24,000 – 3 marks

If have the right figures but have miscalculated the final figure – 2 marks

If missing the £ sign – 2 marks

If they have identified the correct equation – 1 mark
If they have identified the costs and revenue figures – 1 mark

Before opening the business Susan conducted “primary market research in the local area”, describe two benefits she will have obtained from doing this research. (5 marks)

Content – 2 marks – Needs to identify two benefits from using primary market research OR one benefit and a good definition of primary market research

1 mark – Identifies one benefit of primary market research or provides a definition of primary market research

Application – 3 marks – the answer is well applied to the case study

1-2 marks - Limited application to the case study

Primary market research – Is the collection of first-hand data about the market

Benefits include – She could find out what price they would be prepared to pay and therefore price her sweets accordingly
She could find out the most popular sweets and stock these
She could find out the most popular promotional techniques and use them, for example she could have found out that leaflets were an effective way to promote the business

In the first few months Susan struggled with her cash flow, analyse at least two strategies that could have prevented Susan from having to obtain a loan. (6 marks)

Content - 2 marks – Identifies two strategies OR identifies one strategy and defines cash flow
1 mark – Identifies one strategy or defines cash flow

Application – 2 marks – Well applied to the case study
1 mark – Limited application to the case study made

Analysis – 2 marks – Good analysis of the strategies
1 mark – Limited evaluation of the strategies

Points include:
If she had drawn up a cash flow forecast prior to opening the business she could have identified a period where she was short of cash
She could have applied for a flexible overdraft to cover her when she was short of cash
She could have liaised with suppliers and asked for trade credit to give her a longer period to pay.

Profit is the main aim of all small businesses; to what extent do you think Susan could judge her business a success after the first two years of operation. (9 marks)

Content
2 marks – identifies at least two factors that point to the business being a success or a failure, identifies one factor and defines the term profit
1 mark – defines the term profit or identifies one factor

Application
2 marks – Good application to the case
1 mark – Limited application to the case

Analysis
3 marks – Good analysis of the factors
1-2 – Limited analysis of the factors

Evaluation
2 marks – Good evaluation of the situation
1 mark – Limited evaluation of the situation

Points include
In the first year the profit was relatively low - £24,000 considering that Susan and her husband where both running the business
Revenues and profits increase in the 2nd year of operation which shows that the business is growing
Susan struggles with her cash flow when her business starts up, problems with cash flow can lead to companies liquidating.