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Question 1

Business Problems

Situation 1

Peter opened a hardware store 16 months ago. Peter expected to receive $5,000 cash from sales each month during the first year of operating the business. Peter expected that his payments each month would be $4,000. Peter’s actual cash inflow from sales each month was only $2,000. Peter’s actual payments each month were $3,800. Peter had to borrow money from some of his friends to help pay some of his business debts.

Situation 2

Betty manufactured 2,000 bottles of a mineral water drink for dogs known as “Dog’s Own”. Betty only sold a few bottles of mineral water in the first 12 months of operating her business.

Situation 3

Neil worked as a plumber. Neil decided to open a photocopying business. Neil’s business has struggled.

Possible causes of the above problems:

|a |lack of experience in the industry |

|b |lack of marketing research (to find out how many people want to buy this type of product) |

|c |not enough cash held in reserve at the time the business was started. |

Required

|Match each of the above business problems with a possible cause of the problem. |

|Situation / Problem |Possible Cause of the Problem |

|1 |c |

|2 |b |

|3 |a |

Question 2

Eaga Reader intends to open a bookshop.

Eaga Reader’s bookshop will be located near a university. Textbooks will be sold to university students at heavily reduced prices.

Eaga expects that the new bookshop will be very popular with university students. However, Eaga has not conducted any marketing research to confirm his opinion.

Eaga does not believe it is necessary to prepare a business plan.

Eaga has no experience in operating a small business. Eaga did not study any business subjects at school and has not attended any educational institution since leaving school.

Eaga believes that it will cost about $30,000 to establish the business. Eaga can contribute $10,100 and can borrow $20,000 from the Be Your Own Boss Bank.

The cost of the equipment, furniture and stock (the textbooks for sale) will be $30,000. Therefore, the cash at bank balance of the business at the start of trading on day one will be $100. Eaga expects, during the first 12 months, to receive $3,000 cash per month from sales and to pay out $2,500 cash per month in expenses.

Eaga Reader does not intend to install a computerised accounting system. Eaga intends to open a bank account and use the monthly bank statements to keep a check on the cash inflows and cash outflows.

Eaga does not intend to use the services of any business support organisations.

Required

|1 |Name a government organisation that could assist Eaga Reader to set up the business. |

Small Business Counselling Service or Business Enterprise Centre Victoria

|2 |How can Eaga Reader improve the prospects of succeeding in this business? |

|1 |Eaga Reader should conduct a market research study before starting the business. The purpose of this study is to identify the number |

| |of students who are likely to use this service and the size of the discount that Eaga Reader will have to give off the regular price |

| |of textbooks to attract a large number of students to purchase textbooks from his business. |

| | |

| |Eaga Reader could also visit a number of existing bookshops for an extended period of time and observe how these bookshops are |

| |operated. |

| | |

|2 |Eaga Reader should prepare a detailed business plan before starting the business. |

| | |

| |This business plan will assist Eaga Reader to operate the business in an efficient manner. |

| | |

|3 |It would be better if Eaga Reader had experience of operating a bookshop before starting the new business. |

| | |

|4 |Eaga Reader should study a number of business subjects such as accounting, management and marketing. |

| | |

|5 |Eaga Reader should ensure that there is sufficient money available in reserve to keep the business operating for the first two years. |

| | |

| |If the cash received from sales is $2,400 per month, instead of $3,000 per month, Eaga Reader will not have enough money to operate |

| |the business. Eaga Reader will have to either contribute more money to the business or borrow money. |

| | |

|6 |Eaga Reader should install an accounting system that can provide information on the sales, expenses, cash inflows and cash outflows of|

| |the business and that will assist him to prepare his quarterly BAS statement for GST. |

| | |

|7 |Eaga Reader should seek out and listen to advice from customers, suppliers, employees and professional advisers such as accountants |

| |and small business consultants. |

(*) Reference: Questions taken from Business Management in Australia

by Ashley Doyle - copied with permission.

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