Sample Report for Saku Education (June 2022)
Unit 7: Business Decision Making.
BTEC Level 3 Business Studies & BTEC Level 3 Enterprise and Entrepreneurship
Saku Education
Introduction
96% of households in the UK now have access to the Internet increasing the ease of communication between educators and learners outside of the school environment. Recent years have seen an increase in online education businesses offering digital resources. Saku Education is a business that former teachers; Angharad, Kwame, Suki and Ishmael are planning to launch. They intend to form a partnership and their aim is to break even in the first year of trading. They are deciding between two business models;
Selling online teaching resources to educators of primary and secondary age students.
Delivering online tutoring sessions to primary and secondary-age students.
Market Data and Trends
Data and Trends Affecting Option 1
The rise in internet access has made document sharing more affordable and accessible. It is estimated that around 20% of teachers and tutors spend between £500 and £1,000 annually on high-quality educational resources, in addition to what schools allocate. These resources are valuable for enhancing learning in classrooms, during tutoring sessions, or for homeschooling. Over the past five years, there has been a noticeable shift in the supply of educational materials from traditional publishers to independent companies that sell directly to educators, students, and parents. This has led to increased competitive pricing. Educational resource providers can be categorized into two types: those that exclusively sell their own materials and those that offer resources from other authors for a commission. In 2019, one such educational provider reported profits exceeding £6 million.
Data and Trends Affecting Option 2
The global private tutoring market is expected to grow from £71.8 billion to £132.6 billion by 2026, with the UK tuition market estimated at approximately £2 billion per year and expected to grow further. The most popular subjects for tutoring are Maths, English, and Science. Research shows that one in four students in England and Wales use tutoring services, with participation rates as high as 40% in urban areas, compared to just 11% in rural locations. Parents and caregivers generally spend between £900 and £1,000 annually on tutoring services. Additionally, the UK market is one of the largest for private tuition worldwide. The UK government has launched the National Tutoring Programme (NTP), which provides over £350 million to schools for student tutoring; however, funding decisions are made on an annual basis.
Findings and Analysis
Implications for Resources for Option 1: Selling Online Teaching Resources
Human Resources
The four partners already have a wide range of resources ready to upload. With over 60 years of teaching experience combined, it is unlikely that any further training in developing teaching resources will be required in the short term. However, as Angharad and Kwame have recently left the teaching profession, their skills and knowledge may become outdated. As Suki and Ishmal are still working, they could implement internal training to keep them up to date with current trends and changes to the curriculum. As the business expands, they intend to allow other teachers to sell resources via their website. They should consider recruitment strategies in selecting teachers who wish to do this. This may involve checking their resources, using a rating system or checking qualifications. This is important as the brand image of Saku Education could be tarnished if teachers upload substandard resources.
It is important to note that for both options, human resource requirements extend beyond the main operations of the business. Whether they decide between option 1 or 2, they will need to set up a website, manage their accounts and conduct marketing activities. The partners will need to decide whether they will recruit internally by training some of the partners in other functions of the business or outsourcing to other, more specialist providers of these services.
Financial Resources
The start-up costs for option 1 are:
Website development and creation: £5,000
App development and creation: £45,000
Initial marketing costs: £5,000
Total: £55,000
Additionally, the average monthly running costs are (82,000 ÷ 12 months) = £6833
The partners have access to start-up capital of £75,000 including a loan of £25,000 making option 1 start-up costs of £55,000 a viable choice. In addition to the £50,000 investment from the partners, they can borrow £5,000 to cover the start-up costs. They also have the option of borrowing an additional amount up to the value of £20,000 to use as a contingency fund. This may be helpful to cover the running costs (average £6,833) if revenue is low in the first few months due to a slow update of sales. New businesses have a high risk of failure with a leading cause being liquidity issues. A contingency fund should help reduce the risk of a liquidity crisis while they establish themselves on the market.
Physical Resources
The partners will be working from home which removes the need to pay for costs related to business premises such as rent, premises insurance and utilities. Owners have their own computers they will be using to create and upload resources which means that no investment is required for IT resources in the short term. However, over time computers and software may become outdated and need to be replaced or updated. the partners may also wish to invest in subscriptions to online design platforms such as Canva to improve the appearance of their resources. Not having to pay for premises and IT equipment in the early stages of the business reduces risks, reduces pressure to take out loans and lowers the break-even point by lowering costs. This increases the likelihood that Seku Education will achieve its aim to break even in the first year of trading. They do need a website and app to host the resources which they are outsourcing to a web design company. This reduces the risks of technical issues as the company will be skilled and experienced in making platforms like this. However, this costs £50,000 and there is a lead time of one month before the website is ready and five months before the app is ready.
Financial Forecasts for Option 1: Selling Online Teaching Resources
| Income statement for Saku Education Option 1 at the end of the first year of trading | ||
|---|---|---|
| £ | £ | |
| Sales Revenue | 140,000 | |
| Cost of sales | 42,000 | |
| Gross profit | 98,000 | |
| Expenses | ||
| Insurance, utilities etc | 40,000 | |
| Net Profit | 58,000 | |
| Distributed to owners | 46,400 | |
| Retained profit | 11,600 | |
Gross Profit Margin = (98,000 ÷ 140,000) x 100 = 70%
Net Profit Margin = (58,000 ÷ 140,000) x 100 = 41.43%
ROCE = (58,000 ÷ 55,000) x 100 = 105.45%
BEP = £40,000 ÷ £5.25 = 7619 resources per year
Output = 140,000 / 7.50 = 18,666.67
MOS = 18,666.67 - 7619 = 11047.67 (920.64 per month)
SWOT Analysis for Option 1: Selling Online Teaching Resources
Strengths
A key strength related to Option 1 is the range of resources the partners have ready to upload. With a combined teaching experience of over 60 years, the partners have been able to build up their portfolio over a long period of time. This is beneficial to the partners as they wish to attract repeat customers through loyalty schemes. Having a large pool of resources allows the partners to easily offer them as free gifts and offer a broad product portfolio for returning customers.
Weaknesses
A key weakness related to Option 1 is that two partners, Angharad and Kwame are retired. As the educational environment is constantly changing with new technologies and changing curricula, their skills may become outdated quickly. This may limit their ability to produce high quality resources that stand out from rivals which may damage their brand image.
Opportunities
A key opportunity related to Option 1 is the rising popularity of ready-to-use teaching resources in schools. 20% of teachers are using their own money to purchase educational resources in addition to school spending at an estimated £500 and £1000 each year. Markets with high demand are seen as less risky as higher sales volumes are more likely.
Threats
A key threat related to Option 1 is the increase in rival brands selling digital resources. One competitor made profits exceeding £6 million in 2019. Entering a market that is already saturated with a dominant brand is very risky due to high barriers to entry. The market leader will have already established a customer base and brand association with the product making it difficult to succeed in getting customers to switch brands. The market leader will also likely benefit from economies of scale due to its size, making it challenging for Seku Education to compete on price.
Findings and Analysis for Option 2: Delivering Online Tutoring Sessions
Human Resources
The four partners will initially be able to work as the initial tutors for Saku Education. Angharad and Kwame could target the primary students and Suki and Kwame secondary. However, it is unclear which subjects Suki and Kwame teach. With English, Maths and Science being the most popular subjects for tutoring, they need to focus their recruitment efforts on bringing in teachers with knowledge and experience in these fields. As Ishmael and Suki are still working full-time, they are limited to after-school tutoring leaving just Angharad and Kwame to target the home-schooling market. It is therefore recommended that the market is analysed for the most popular subjects and times of day customers want tutoring and use this to inform their recruitment strategy. They should only recruit qualified and experienced teachers with up to date safeguarding checks.
Financial Resources
The initial start-up costs for option 2 are:
Website development and creation: £10,000
App development and creation: £60,000
Initial marketing costs: £5,000
Total: £75,000
Average monthly running costs are (56,250 12 months): £4,687.50
Start-up costs for Option 2 are £75,000, equal to the capital available to the partners. This includes a £50,000 investment from the partners and a £25,000 bank loan. Although this is still a viable option, it may be seen as more risky than Option 1 because there is no finance remaining to use as a contingency fund. Average monthly running costs are £4,687.50 and due to the time it will take to create the website and app and to recruit additional tutors, it may take some time for revenue to cover costs. To avoid a liquidity crisis, partners should consider additional sources of finance they will draw upon if additional finance is needed with this option.
Physical Resources
As with option 1, the partners will also be working from home using their own computers. This removes the need to pay for premises or IT equipment costs. However, it is important to consider the quality of the connection for online tutoring. Online tutoring sessions will require video conferencing platforms such as Zoom or Microsoft Teams. To access all of the features, Seku Education will likely need to pay for a premier version of one of these platforms. They may also need to consider the specifications of their computers as slow computer processing can cause lag which is frustrating. As they will be recruiting additional tutors, it is important to consider the quality of computers those tutors will be using and may need to consider purchasing or subsidising computers and software. If their tutors are delivering online sessions that are laggy due to slow computer processing, this can put Seku Education’s whole brand reputation at risk. As with option 1, option 2 also requires a website and app. The development cost is £70,000 and the lead time is one month for the website and six months for the app.
| Income statement for Saku Education Option 2 at the end of the first year of trading | ||
|---|---|---|
| £ | £ | |
| Sales Revenue | 125,000 | |
| Cost of sales | 31,250 | |
| Gross profit | 93,750 | |
| Expenses | ||
| Insurance, utilities etc | 25,000 | |
| Net Profit | 68,750 | |
| Distributed to owners | 55,000 | |
| Retained profit | 13,750 | |
Gross Profit Margin = (93,750 ÷ 125,000) x 100 = 75%
Net Profit Margin = (68,750 ÷ 125,000) x 100 = 55%
ROCE = (68,750 ÷ 75,000) x 100 = 91.67%
BEP = £25,000 ÷ £22.50 = 1,111 sessions per year
Output = 125,000 ÷ 30 = 4,166.67
MOS = 4,166.67 - 1,111 = 3,055.67 (254.64 per month)
SWOT Analysis for Option 2
Strengths
A key strength related to Option 2 is the combined teaching experience of over 60 years. This means that they likely have a deep understanding of both the curriculum and the educational needs of a wide range of children. Children attending tutors usually do so because they are struggling or need some extra support. More experienced teachers should be able to quickly identify their individual needs and tailor a specific programme to support them.
Weaknesses
A key weakness related to Option 2 is the lack of subject diversity across the partners. Parents/carers arranging tutoring tend to do so to access specific expertise in a subject area to support their child with the most popular subjects being Maths, English and Science.
Opportunities
A key opportunity for Option 2 is the growth of tutoring markets. The global tutoring market is estimated to be growing by 7% per year and the UK tutoring market is expected to be worth around £2 billion with 1 in 4 students in England and Wales using a tutor. The English government is providing opportunities for more students to access tutoring through the Natonal Tutoring Programme (NTP) by providing more than £350 million to schools to access tutoring for their learners. This could be an opportunity for Seku Education to access untapped markets such as those in rural areas where only 11% of learners use tutors compared to 40% in urban areas.
Threats
A key threat related to Option 2 is the impact of political changes on educational priorities and funding. The UK has a general election every five years with positions within government changing more regularly. As education is a primary focus of a government, changing government personnel can change the priorities towards education and it’s funding. As the NTP funding is being decided on an annual basis, investment into a market funded by this initiative could be seen as risky.
5 Cs Analysis for Seku Education
Company
The partners have a combined teaching experience of over 60 years with experience in both primary and secondary. They already have a range of resources ready to upload and have their own computers which they would need for either option. They have available finance of £50,000 plus loan approval £25,000.
However, Ishmael and Suki are till working as full-time teachers so may face time constraints. Although Angharad and Kwame retired giving them more time to work on the business, they become out of touch with trends in education as a result. There is also a lack of subject diversity amongst the team with only two secondary teachers, there will be subjects they do not have experience and expertise in teaching.
As with all new businesses, there is a high risk of failure. It is estimated that approximately 50% of all new businesses fail within five years with lack of planning, cash flow problems and lack of understanding of the market being cited as key causes. Given the level of financial investment of up to £75,000 and two of the partners considering giving up their jobs as teachers, it is essential for them to conduct thorough planning to mitigate the risks of failure.
Customers
Option 1 consumers are primary and secondary school students in the UK. One in four students in England and Wales experience tutoring. The customers are the parents/carers who pay for the service. A session typically costs between £25 - £50 per hour, with the parents/carers paying, on average, between £900 and £1000 per year.
Option 2 customers are primary and secondary school teachers in the UK. 20%of teachers spend their own money purchasing educational resources monthly. They spend between £500 and £1000 each year on high-quality resources in addition to school spending.
Competitors
There has been an increase in the number of online education businesses offering digital resources and tutoring services. The number of independent companies creating and selling educational resources, such as Twinkl and White Rose, is on the rise. In 2019, profits from one educational resource provider exceeded £6 million, reflecting an approximate 30% increase from the previous year.
The global private tutoring market is projected to grow from £71.8 billion to £132.6 billion by 2026, with an average annual growth rate of 7%. The UK tuition market is expected to be valued at around £2 billion annually and continues to grow. The UK market is among the largest for private tuition each year.
Collaborators
A website design company will be used to create a professional website and app. Outsourcing non-core tasks such as this can enhance the quality of the design as the company is likely to have higher levels of expertise than the partners in this area due to their experience. They will be able to add online payment features for both options and choices of pay-per-resource or monthly subscription options for Option 1. However, this service accounts for a significant portion of the start-up costs at £50,000 for Option 1 and £70,000 for Option 2. This is in addition to time lags on development on either website option of one month, five months for the app for Option 1 and six months for the app for Option 2.
The NTP is a collaboration between the English government and schools to support the provision of tutoring. This is a potential collaboration that Saku Education can try and be part of as there is funding of more than £350 million for schools to support children to access tutoring. This provides the opportunity to access a new market not being provided for by established rivals as the learners being targeted are likely to be those that cannot currently access tutoring. However, there are some risks to investing in this collaboration as the NTP funding is reviewed on an annual basis.
Climate
The landscape of online education resources and tutoring has transformed significantly, with 96% of households now having internet access. 1 in 4 students in England and Wales are already using tutoring services. However, there is a geographical divide with only 11% of students in rural areas using tutors compared to 40% in urban areas. In addition to the potential market of home-educated students, there could be an opportunity to use an online provision to support those learners in rural areas who struggle to access due to their location.
Discussion
There appear to be strong markets for both business models with 20% of teachers buying educational resources on top of school spending and the UK tuition market being valued at approximately £2 million per year. This reduces the risk of entering either market as the products are already popular. However, there are existing competitors in both markets which could present barriers to entry.
Both business models have similar requirements in terms of human and physical resources. In the short term, the partners will use their personal computers and will be putting in the human effort whichever option is decided. The risks differ in the long run when they begin to expand. Option 2 requires more recruitment outside of the partnership as it is more labour-intensive. This could be more risky as the partners lose control of the quality of their service, putting pressure on their human resource management such as recruitment and training.
Regarding financial analysis, Option 1 has higher revenue at £140,000 compared to £125,000 in Option 2. However, Option 2 has a higher gross profit margin and net profit margin at 75% and 55% compared to 70% and 41.4% demonstrating more efficiency in managing its cost of sales and expenses. This could make Option 2 less risky because higher profit margins can indicate a stronger ability to withstand unexpected fluctuations in market conditions. However, Option 1 has a higher ROCE at 105.45% compared to 91.67%, meaning it is more efficient in generating profits from invested capital and higher returns for investors. This increases the likelihood of further investment for growth minimising the risks associated with smaller businesses, such as cash flow challenges and limited access to funding.
Option 2 has a lower break-even point than Option 1 at 1,111 compared to 7,619 meaning they only need to provide 92.6 online tutoring sessions to break even compared to selling 634.9 online resources each month to break even. However, due to the nature of the different products/services, there is a much higher labour investment required to produce and sell one online tutoring session than to sell one resource.
Conclusion
As the primary objective of Seku Education is to break even within the first year, it is recommended that they choose Option 1, to sell online teaching resources. Despite the break-even point being higher, the effort required to reach this point is much lower. Given the time constraints on half of the partnership team remaining in full-time teaching roles, Option 1 provides them with the opportunity to fit the human resource requirements of the business around their existing commitments. This is in addition to having access to start-up capital above their requirements providing them with a contingency fund to draw upon should any unexpected issues arise.
