Operations "A" 8 marks
3 (a) Explain two reasons why a business plan is important to DVP.
Reason 1: Sets direction for Dee.
Explanation: Dee has recently set up DVP and may have little experience in running a business.
So her business is prepared and organised and will have a greater chance of success.
Reason 2: Able to get finance
Explanation: To get the bank loan of $4000 to start her business
Dee needs to show the bank that she has a plan in place to cover all costs and be able to repay the bank loan.
Operations "B" 12 marks
Consider the following three possible business objectives for DVP.
– Be an environmentally friendly business
– Increase market share
Which objective is likely to be most important to DVP in the long run? Justify your answer.
- Be an environmentally friendly business
By using paints which are produced without using harmful chemicals, DVP may attract ethical consumers and increase sales. This may lead to extra word-of-mouth promotion among environmentally friendly customers.
However, the environmentally friendly paint is more expensive so may increase prices against competitors who don’t use ethically produced paint.
- Increase market share
With increased market share, DVP can increase sales and profits from painting and decorating services. This will lead to further business growth and greater economies of scale.
However, increasing market share will require greater spending on promotion and as a new business DVP has a limited marketing budget.
As a new business, survival is crucial for DVP as many businesses fail after starting up. By focusing on survival, DVP can make sure they find customers and keep positive cash flow so they can continue operating.
However, focusing on survival long term may mean DVP misses out on opportunities to expand and increase profits.
Increasing market share will be most important long term as it will mean Dee can grow her new business and expand to meet the demand for painting services leading to higher profits.
Survival is an important short-term objective, but entrepreneurs should aim for more than just getting by when incomes are increasing.
When her business grows, she will be able to afford the extra investment to be more environmentally friendly.