Break-even Analysis for SMEs

This assignment is focused on the application of break-even analysis in small and medium-sized enterprises (SMEs). The task requires analyzing the given references, identifying relevant information, and providing a summary of the key concepts. The student needs to extract specific details from the references, such as authors, years, and page numbers, and use this information to answer the questions. The assignment also requires the student to provide an illustration of break-even analysis and summarize the content in a paragraph. This is a comprehensive assignment that tests the student's ability to analyze complex information, identify key concepts, and present their findings in a clear and concise manner.

Managing &
Running a Small
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1) Main considerations a small business or social enterprise required to run business while
planning and allocating resources..........................................................................................1
TASK 2............................................................................................................................................3
P2) Different processes of customer relationship management for small business...............3
P3) Small business can develop transnationally along with benefits and drawbacks............4
TASK 3............................................................................................................................................6
P4) An annual itemised monthly cash flow forecast showing fixed and variable costs.........6
P5) How Break- even analysis can apply on different situation of organisation.................10
P6) Financial statements for an organisation........................................................................11
TASK 4..........................................................................................................................................12
P7) Legislation and regulations that have implications on small businesses......................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Small business can be stated as those companies which gives employment to less than 50
people and turnover of them doesn't exceed €10 million annually. But to open a business in small
sector less investment is required. Therefore, many entrepreneurs are used to run their business
small and large sectors. In UK, thousands of companies are launching in small sectors every year
which helps in reducing unemployment. Moreover, they are also considered as backbone of a
country as profitability of these organisations give a large contribution in improving and
increasing economy. The assignment is going to make a discussion upon how entrepreneurs
manage and run a small business in a successful manner (Winarno and Wijijayanti, 2018). In
this regard, Carter Lane Coffee House which is a small coffee shop of London will be taken.
This cafe serves a wide variety of food and beverage products to customers. Further, this report
will also depicted on the way of developing business transnationally by SMEs.
TASK 1
P1) Main considerations a small business or social enterprise required to run business while
planning and allocating resources
Carter Lane Coffee House deals in small business sector and offers a range of coffee
products with fresh bakery items. It is a friendly and warm cafe house having a passion for art of
barista. From per views of customers, it is considered as best cafe in Street of London which has
amazing coffee with smilies, attractive ambience and great banter (Weske, 2012). Along with
this, it has lovely and friendly workers in staff that know how to meet requirement of customers
on time. It has a friendly and experienced staff who understand easily what a customer needs
from them. It also gives opportunities to many job seekers who are interested to work in this
field. While planning and allocating resources, this firm needs to concern on some major factors
which help in growing business in an efficient way are given as below: -
Setting of goals and objectives of the firm- It is first major factor which states a firm to
set goals and objectives of business. This will help employers and staff members to understand in
what manner they have to perform so that target could be achieved. Along with this, they should
set mission and vision of business also. In this regard, the main mission of Carter Lane is to serve
rich and creamy taste of cafe products (Williams, 2012). While vision statement of this cafe is to
enhance a large customer base by growing business in other food sectors also.
1

Planning of financial resources: In order to carry out business activities in a appropriate
manner, it is necessary foe employers of small companies to make a proper budget plan. This
kind of plan helps them in recognising how much finance is required to run business (Stanciu,
2015). In context with Carter Lane Coffee House, entrepreneurs of this firm also required to
determine actual financial condition of business. This would help them in evaluating if there is a
requirement to arrange funds from different sources or not.
Planning of human resources: It is considered as main factors as without proper human
resource, a company cannot operated functions in desired manner. Thus, it is essential for
employers of Carter Lane Coffee House to hire proper employees at workplace. As there is
intense competition at marketplace in cafe sector so, this firm requires to give opportunity to
freshers in cooking division and experienced in customer service department. The main reason
behind this is changing in taste and preference of people because they always seek to get
something different and new variety. Therefore, freshers in cooking field have new idea and high
energy level to serve tasty and delicious food. While experienced employees know better how to
deliver services to customers and get retention for longer period of time.
There are two methods available for a company via Critical path analysis and Gantt chart
through which managers can plan and allocate resources in a proper manner. Concept of these
methods can b explained as:-
Critical path analysis- The type of method helps management of a company in planning
and organising overall activities of business in a sequential order. It will help them in obtaining
best results of business by analysis process of each activity. Along with this, in case of
interruption which may occur while completing a function, then this method provides measures
for resolving such issues within a short period of interval.
Gantt chart – This technique is used to allocate resources by fixing a time period of each
activity in a proper manner. In addition to this, it also describes funds which is required for
completing the same. Therefore, through this methods, employers of a firm can analyse time
period and requirement of finance for accomplishment of a task and take decisions accordingly.
Both of the above mentioned methods help Carter Lane Cafe House in running and
managing resources of business in a proper manner (Smit, Y. and Watkins, 2012). It includes
finance, machinery, human capital and more. By using Gantt Chart and Critical path analysis,
2

managers can determine in what manner these resources can be utilised so that higher outcomes
can be obtained.
TASK 2
P2) Different processes of customer relationship management for small business
Customers play a major role in running and enhancing business of a company. As
without support of them an organisation cannot gains its profitability. Therefore, it is necessary
for enterprises to develop a good relationship with them so that business can run in profitable
manner. In context with Carter Lane Coffee House, this firm needs to adopt concept of CRM
(Customer Relationship Management) strategies in business activities (Schaper and et. al.,2 014).
This process help managers in determining behaviour and needs of people through which strong
relationship with them can be developed. Furthermore, by developing better relations with
people, gives various benefits like identifying needs of targeted customers, cross-selling of other
food products, increasing sales by meeting requirements of them and more. It also aids a firm in
evaluating which portion of marketplace help them in increasing their profitability. Some major
processes of CRM for SMEs are:-
Customer portfolio analysis- It is considered as initial step of CRM procedure through
which a firm can categories customers as per demographic and behaviour of them like age,
status, preferences, purchasing power and more. Thus, it would help Carter Cafe in targeting a
particular group and meet requirements of them in a proper manner.
Customer intimacy- This stage of CRM process entails a firm in making good connection
with targeted audience and getting familiar with their taste and behaviour (Jasra and et. al.,
2012). In context with intimacy, it is related closeness with people through which a company can
offer them products as per requirement and purchasing power of them.
Develop the Network- This stage reflects connectedness of a company with its
stakeholders who provide their support in managing and delivering services to targeted audience.
Hence, it is essential for managers of Carter Cafe Lane House to develop effective relationship
with stakeholders so that better services can be delivered to customers.
Value proposition development- It is a last stage of CRM process under which managers
of Carter Cafe are required to collect information related to behaviour and demand of customers.
3

After this procedure, they should formulate strategies through which they can meet requirements
of people on time.
Thus, this process of CRM like customer portfolio analysis, managers of Carter Cafe has
evaluated that people who are living nearby cafe seek to get bakery items on less rates. Along
with this, customers want table services with less waiting time so, it is necessary to this firm to
delivery quick and proper services to them. Thorough value proposition technique, it has
identified that people at marketplace attract more by getting variety of Barista having different
style. So, it gives opportunity to this cafe to serve Italian and other style of cafe through which
high attention of customers can be gained. Hence, all these processes helps in building effective
relationship with consumers.
Process of CRM activities involves several factors which supports in building positive
relationship with the consumers. In relation to this, it is the responsibility for the manager to
identify needs and requirement of the customers which helps in modifying their products and
services. Along with this, manager of Carter Lane Cafe House also emphasize on current market
trend for making trendy products for customer which will enhance their satisfaction level. In
context to the Carter Lane, its manager should perform all the business operation in effective
manner for achieving targeted goals sand objectives.
CRM process includes following steps which are evaluated as below: Correlate: This step emphasize on appropriate sequence of communication procedure
which helps in executing effective customer relationship. Combine: In this step manager of Carter Lane develops polite conversation with
customer with effective communication skill. Cognize: In this step, manager focuses on gathering information on several types of
product on the basis of market scenario.
 Connect: This step emphasize on interact with massive population with various channel
of media suppliers, and investors.
P3) Small business can develop transnationally along with benefits and drawbacks
Employers of small companies at initial stage of business seeks to increase sales rather
than to develop relationship with customers. Therefore, in this regard they can adopt
transactional sales strategy. This type of strategy helps them in selling their products or services
in a rapid manner. As it doesn't concern on building long term relationship of organisations with
4

consumers at marketplace (Jenkins and et. al., 2013). It provides techniques through which a
firm can deliver its services at marketplace according to demand. As per present case scenario,
Carter Lane Coffee House which deals in SME sectors, for improving sales performance in a
quick manner. For this process, managers of this cafe are required to conduct research of
marketplace in a proper way. It will help analysing latest trends of marketplace as well as
behaviour of customers. Market research helps them in preparing information through which
managers can develop strategies and policies tactics for increasing sales performance.
In order to attract large number of customers and gain their attention, Carter Cafe Lane
offers a wide variety of eatables like Italian Baristas style of coffee, delicious Brazillian
Decaffinated espresso having rich and creamy butter taste, flavoured pastries and more. In
addition to this, it has provided two table counters facilities with chairs and a peaceful
environment where a customer can browse web without any interruption. But as in cafe sectors,
there is a large competition present, therefore, Carter Cafe also required to prepare some actions
plans and create modifications in business as well (Harmon, 2015). It will help in maintaining
image as well as expanding business in other locations also. In this regard, it needs to adopt
transactional sales strategy which helps in accomplishing short term objectives in a less period of
time. Currently, this cafe house seeks to enhance sales performance of near about 3% in
upcoming months. Thus, this type of strategy helps managers in planning and allocating
resources in a utilised manner so that targeted mission can be achieved in given time. For this
process, it is essential for management of this cafe to serve high quality of coffee and bakery
items on less price rates as compared to competitors present at same marketplace.
Some main advantages and disadvantages of transactional sales are given as beneath:-
Benefits - Brand Loyalty: It describes the procedure through which a company connects with its
customers and convince them for purchasing their commodities (Hammer, 2015). Thus,
this will also help Carter Cafe in assisting people to put feet of them at its outlet and
enjoy taste of barista and other eatables. Since main purpose of adopting transactional
sales strategy by managers of this is to increase sales and attain profitability. Therefore, it
should deliver products or services according to demand of customers. It also help in
enhancing brand image of this company at marketplace.
5

 Product Development: By transactional sales, Carter Lane Cafe can develop its products
or services by adding more value in them. It would help in delivering rich and nutrition
food items to customers as per taste and preferences of them.
Drawbacks
 Lengthy- Formulating new strategies and polices for product and sales development by
transactional sales will take long time. Therefore, it is not suitable for small firms who
just want to obtain profitability in quick manner.
 Financial risks- Adopting and implementing new techniques at workplace include major
risks and uncertainties as well (Durst and Wilhelm, 2012). In context with small
companies which have less financial resources, creating modification in business is not
an easy process. It will directly impact on working system and performance of business
as well. Along with this, for initiating new techniques, organisations are required to give
proper training to workers also which affect budget of them. Therefore, developing
transactional sales strategy is considered as inappropriate for small business.
TASK 3
P4) An annual itemised monthly cash flow forecast showing fixed and variable costs
As finance plays a major role in running an organisation successfully, therefore,
managers of Cater Cafe Lane House requires to analyse sources from where they can raise
sufficient amounts of funds (Skolud and et. al., 2016). For this process, they are required to
prepare a proper budget and action plan first, which helps in determining need of capital. In this
regard, some major sources from where this cafe and other SMEs can raise funds are explained
as beneath:- Bank loan- In UK marketplace, there are many commercial and banks are available like
HSBC, Barclays, NatWest and more which gives loan, credit and other facilities to
organisations on fixed rate of interest (Durst and Runar Edvardsson, 2012). So,
employers of Cater Cafe can take loan from such financial institutions. Government grants and subsidies: Agencies in these sectors provide finance like
subsidies and grants to organisations. But getting grants in this kind of source can be
tough also as employers are required to give a detailed description of project to
government agencies. Along with this, they should explain benefits, work-plan with
6

requirement of funds, details of relevant experiences as well as background of managers
and more.
Forecasting and budgeting Time series data- It consists a set of observations based on values that helps a company
in setting different schedule of planned activities (Drucker, 2012). Through this
technique, managers can execute entire activities of plan within given period of time as
well as in set budget also.
 Dealing with seasonality developing budget- Using this technique, management of an
organisation take necessary decisions related to modifications in existing plan of action
and budget. Thus, it would help employers of Carter Lane House in dealing with future
and current trends of market place in systematic manner.
Balance Sheet, P&L and cash flow statement of Carter Lane Coffee House:
Year 2017 (value in £) 2018 (value in £)
Fixed assets 130 210
Stock 20 35
Debtors 70 55
Bank 20 30
Total 240 330
Creditors 120 180
Bank overdraft 90 70
Total 210 300
Working capital 30 80
7

Profit and Loss Account at the year ended
2017 2018
Sales 20 30
Cost of sales 10 15
Gross profit 30 45
Overheads 6 7
Net. profit 24 38
Cash flow Statement
Cash budget for the year
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year
Beginning cash balance 28000 30250 31550 29650 28750
Budgeted cash receipts 13400 37550 64690 92370 118170
Total cash available 41400 67800 96240 122020 146920
Cash distributed
Direct material 1500 1050 1650 1500 1550
Direct labour 1300 660 850 850 680
Overhead 500 650 630 700 670
8

Selling and distribution 550 750 740 800 760
Total cost use 3850 3110 3870 3850 3660
Cash surplus/ deficit 37550 64690 92370 118170 143260
9

P5) How Break- even analysis can apply on different situation of organisation
Break even analysis is an important tool which helps production and accountants of a
company in determining how much in a month or year they need to sell for covering costs of
business. Break-even analysis categorise production costs of of a firm as variable and fixed costs.
Costs which can be varied with output of production comes under variable. While costs which is
10

not directly related with production volume is termed as fixed (Break Even Analysis. 2018). In
this manner, fixed and total variable costs are used to compare with revenue of sales for
determining level of production and performance. It also entails on which point at which
production of business cannot obtain loss or profit.
(Sources:Break-even analysis,2018)
As per this graphical representation, level of costs of different activities helps employers
of Carter Lane Coffee to predict desired sales and output of business related to future easily.
Therefore, this type of analysis refers as an important tool which assists in reducing wastages and
expenses by creating modifications in planning activities accordingly.
Break-even point: This point helps managers of a company in determining on which phase
business will turn to generate profit and aids them in formulating price strategy of different
products as well. For example- If Carter Cafe wants to sell coffee product at $10 for covering all
fixed monthly expenses which is near about $20000. Therefore, it should sell 10,000 coffee in
order to get break even for month.
i.e.,
BEP: Fixed costs / construction margin per unit or product = 20000/(10-8) = 10000 units.
11

P6) Financial statements for an organisation
Financial statements is usually prepared by management of a company for tracking
current position of business in a certain period of time (Cojoacă, 2017). It includes various
elements like trading account, income statement, balance sheet, cash inflow and outflow etc.
Thus, it is necessary for account managers of Carter Lane Coffee House to prepare financial
statement which will help in giving details of business to creditors and investors so that they can
make decisions for further investment.
The main types of financial statement are stated as below:
Balance sheet: It shows equity shareholders, current assets and liabilities of business. It
is normally based on fundamental equation of finance i.e. Assets = Equity + Liabilities. Thus,
through this statement employers of Cater Lane Cafe House can analyse how total assets of
business are financed either in equity or debt.
Profit & loss account: As per law, it is necessary for a company to prepare profit and
loss account through which net incomes of business can be revealed. For example- If owner of
Cater House may consider that business has brought enough income in a specific period for
renovating premises and growth in other manner (Chauma, 2017). But to prepare this statement,
accountants are required to prepare trading account also which includes income from sales and
direct costs associated with sales.
Cash flow statement- It is a critical as well as integral part of financial statement. It
helps a company in monitoring and preventing debt, unnecessary expenses which occurs due to
late payment penalties. This statement also present cash outflows and inflows of a business
during a specified period. Management make employees work in team which help them to share
ideas and opinions with each other. This help members to have knowledge in particular field to
execute activities effectively. Apart from this, staff is also able to reduce their stress level by
communicating about issues and problems by colleagues and top personnel.
TASK 4
P7) Legislation and regulations that have implications on small businesses
In order to run organisations in a legal manner, government of a country establishes
various laws and legislations. It includes many regulations such as Health and Safety law 1974,
Data protection act 1998, Consumer Rights 1997 and many employment laws. All these laws are
12

amendable for all companies which lie under a territorial regions to follow so that operational
and other activities of business can be conducted in a proper manner. For entrepreneurs who
want to launch their business in a particular field has to prepare many documents like they need
to register name of company first. Along with this, they should comply their business with such
laws. Furthermore, employers also need to conduct some major legal formalities such as protect
business by insurance plan, keeping record of every activity and transaction, prevent data from
theft and loss through intellectual protection rights, pay tax on time and more (Burns, 2016). In
context with Carter Lane Cafe House which deals in food and beverage sectors therefore, its
managers are required to focus more on quality of products, variety of ingredients use for
cooking process and and provide good ambience to customers. Moreover, they must ensure that
kitchen and other area of cafe should be free from insect and moisture as well as measure
cleanliness of the same in regular manner. Some major legislation which have implications on
organisations and SMEs are:-
Menu Labelling: This law has established by Food and Drug Administration in 2010
which stated organisations dealing in food sectors to label their products. It includes necessary
and detail information about products like ingredients, calorie, nutrition level and more on menu
card in a readable form. It helps customers in analysing calorific value of food items and other
beverages guests while putting order. Hence, employers of Carter Lane Cafe House are required
to ensure that rich and high quality of ingredients are used in cooking products and label
essential information on each item as well.
Employment Law: It includes various laws which are made in order to protect workers
from exploitation and give them many benefits. It includes Equality Act 2010, National
Minimum Wage Act 1998 and more (Bridge and O'Neill, 2012). Therefore, it is necessary for
Carter Cafe Lane House to provide equality and discrimination free environment to workers as
well as provide them necessary training. This would help employees in conducting their task in
healthy and safe manner. To retain workers for longer period, this cafe also give flexible working
hours and some facilities like medical benefits, insurance, paid leaves so on.
Consumer Laws: This law has enacted by government of UK which protects rights of
consumers when they purchase products or services of a company. It includes safety regulations
for ensuring that people cannot buy such products which are potentially harmful for their health.
In this regard, Carter lane Coffee House is required to provide high quality of product to
13

consumers and maintain hygiene Level of outlet (Ali and Babiker, 2017). Along with this, they
should give proper inclusion of information which includes description of delivery, price rates,
cancellation policies and more. This kind of information helps customers for placing order
safely.
CONCLUSION
It has concluded from this assignment that in order to run business in small sectors,
employers are required to concern on various factors. They should concern on arrangement of
resources like finance, labours, machineries and more while planning and allocating resources.
Along with this, they should adopt CRM activities for building good relationship with customers
through which retention of them can be gained. Managers should concern on laws and legislation
of regulatory bodies also so that business can be run in smooth and legal manner.
14

REFERENCES
Books and Journal
Ali, N. S. H. M. and Babiker, S. M. E., 2017. Performance Evaluation of Multi-core Systems
using SPEC CPU2006 Benchmark.
Bridge, S. and O'Neill, K., 2012. Understanding enterprise: Entrepreneurship and small
business. Palgrave Macmillan.
Burns, P., 2016. Entrepreneurship and small business. Palgrave Macmillan Limited.
Chauma, C. N., 2017.The application of project management tools and techniques in ICT SME
projects in Western Cape (Doctoral dissertation, Cape Peninsula University of
Technology).
Cojoacă, E. Ş. D., 2017. Interoperability of SME Databases from the Project Management Point
of View. Informatica Economica. 21(4). pp.15-28.
Drucker, P., 2012. The frontiers of management. Routledge.
Durst, S. and Runar Edvardsson, I., 2012. Knowledge management in SMEs: a literature review.
Journal of Knowledge Management. 16(6). pp.879-903.
Durst, S. and Wilhelm, S., 2012. Knowledge management and succession planning in SMEs.
Journal of Knowledge Management. 16(4). pp.637-649.
Hammer, M., 2015. What is business process management?. In Handbook on Business Process
Management 1 (pp. 3-16). Springer, Berlin, Heidelberg.
Harmon, P., 2015. The scope and evolution of business process management. In Handbook on
business process management 1 (pp. 37-80). Springer, Berlin, Heidelberg.
Jasra, J. M. and et. al., 2012. Determinants of business success of small and medium enterprises.
Jenkins, P. T. and et. al., 2013. Method and system for managing enterprise content. U.S. Patent
8,464,206.
Schaper, M.T. and et. al., 2 014. Entrepreneurship and small business.
Skolud, B. and et. al., 2016, October. Integration of Manufacturing Functions for SME. Holonic-
Based Approach. In International Joint Conference SOCO’16-CISIS’16-ICEUTE’16
(pp. 464-473). Springer, Cham.
Smit, Y. and Watkins, J.A., 2012. A literature review of small and medium enterprises (SME)
risk management practices in South Africa. African Journal of Business Management.
6(21). p.6324.
Stanciu, R. D., 2015. Performance Management-A Strategic Tool. FAIMA Business &
Management Journal. 3(2). p.5.
Weske, M., 2012. Business process management architectures. In Business Process Management
(pp. 333-371). Springer, Berlin, Heidelberg.
Williams, C. C., 2012. The hidden enterprise culture. In Enterprise, Deprivation and Social
Exclusion (pp. 184-204). Routledge.
Winarno, A. and Wijijayanti, T., 2018. DOES entrepreneurial literacy correlate to the small-
medium enterprises performance in batu east java?. academy of entrepreneurship
journal. 24(1).
Online:
Break Even Analysis. 2018. [Online]. Available
through:<https://www.tutor2u.net/business/reference/operations-introduction-to-break-
even-analysis>.
15

16