A Christmas Tale

It started with a half-term homework. The class was

asked to come up with an outline plan for a new
business. It had to be cheap to start up and local.

Skye thought ahead and drew up a plan for a pop-up

Christmas tree stall in her local Coop car park. She took
it seriously, popping down to see the store manager to
talk it through. He was happy to say yes to a 5-week
rental for £400 a week (though the £2,000 would have
to be paid up-front).

When she talked it over at home, Skye was surprised by

her mum’s interest. Mum even made a few phone calls
to try to find out the wholesale price of the trees. Two
suppliers told her that to get the lowest prices, you
needed to place firm orders much earlier in the year.
But one said he had some spare stock. He could do
trees for £15 - £20 each. With London prices as high as
£40, this sounded very promising.
Skye’s Business Plan
Start-up capital required: £8,000
Rent £2,000
Initial tree order: 200 at £17.50 each = £3,500
Electricity generator (for lighting): £2,000 deposit
Other equipment and signage: £500

Weekly revenue forecast: 200 trees at £35 each = £7,000

Weekly costs: 200 trees at £17.50 = £3,500

Rent: £400
Other fixed costs: £600
Having seen – and checked – Skye’s plan, mum went for it. She’d always wanted to be her own boss. She
borrowed £9,000 from Aunt Debs, then sorted out the Coop, the generator, signage and the supplier. On
November 25th 2017 the business started up. Mum knew that sales would be slow in November, but on
Saturday Dec. 2nd the trees flew. On that day alone sales were more than £5,000. The biggest problem was
finding safe places for all that cash. On the Monday Mum doubled her order to 400 trees from the supplier.

Questions 20 marks; 20 minutes

1. Outline one non-financial aim shown by Skye’s mum the entrepreneur. (2)

2. Calculate the profit or loss if 200 trees are sold in the coming week. (3)

3. Analyse the problems the business may face before the Christmas period is over. (6)

4. Calculate the profit or loss if 300 trees are sold in the coming week. (3)

5. Discuss how a break-even diagram might help an entrepreneur make business decisions. (6)
 Marking and Answers

1. Outline one non-financial aim shown by Skye’s mum the entrepreneur. (2)

 Her desire to be her own boss can come under a lot of headings on the specification: personal
satisfaction, challenge, independence and control

2. Calculate the profit or loss if 200 trees are sold in the coming week. (3)

 If 200 are sold, that’s 200 x £35 = £7,000 in revenue (1)

 … and (200 x £17.50) + £1,000 = £4,500 in total costs (1)
 = £2,500 of profit for the week. (1)

3. Analyse the problems the business may face before the Christmas period is over. (6)

 A big potential problem is knowing when to cut back on the orders, because tree sales will dry up
some time before December 24th. If the business reaches the end of December 24th with 200 trees
left over, it will have wasted £3,500 (at least one week’s profit). So mum should probably cut right
back on orders by about December 12th.
 Another possible problem is competition. It’s not very likely that a new rival will set up nearby at
this stage (they’ve left it too late), but there will be plenty of local rivals selling trees. What if those
rivals choose to cut their prices to £30? If Skye’s mum doesn’t notice, and just thinks sales are going
slowly, she may lose sales that cannot be recovered. She should make sure to check out her
competitors’ prices regularly – and be willing to match any price cuts.

2. Calculate the profit or loss if 300 trees are sold in the coming week. (3)

 If 300 are sold, that’s 300 x £35 = £10,500 in revenue (1)

 … and (300 x £17.50) + £1,000 = £6,250 in total costs (1)
 = £4,250 of profit for the week. (1)

5. Discuss how a break-even diagram might help an entrepreneur make business decisions. (6)

 A break-even diagram shows revenue, costs and therefore profit/loss at every possible output level.
Therefore it helps at the start, with the decision on whether or not to start the business. Only if the
break-even point is relatively low – and the safety margin fairly high – should the business proceed.
 The diagram can also be useful when the business gets going. A price increase makes the revenue
line steeper, the potential profits greater and the break-even point lower. So a business should be
keen to push its prices up if it can do so without hitting sales volumes too badly. The break-even
chart can help with this decision
 Both of these are extremely important decisions in business, but it could be argued that no decision
can ever be as fundamental as ‘should we start-up or not?’ so the first factor (deciding whether to
start up or not) is the more important of the two.