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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 | |

|2 | |

|3 | |

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. |

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

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

by Ashley Doyle - copied with permission.

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