Karyn always enjoyed tea and has been buying her favourite teas for years. Last year when the local tea shop closed down she contacted the distributor and then began importing some teas for herself directly after searching for organic teas. She gave some to friends that also like tea and then she decided that this could be a great mail order subscription business if she varied her teas to let people try different types of tea.

Karyn thinks that she could easily sell packs of tea satchels each month for about $25. The cost of the tea for each pack is about $10. Shipping costs are $5 a satchel. She doesn't incur any fixed costs now but if she were to get any larger she would need to hire someone to assist and she would need a small warehouse to process all the orders and hold some inventory. The cost of hiring someone to help for one day per week would be $800 a month and rent on a small office would be $1000 a month.

Karyn thinks she can sell 200 packs per month without any advertising or hiring anyone else. If she were to advertise she thinks paying $1000 a month would increase her sales by 350 packs.

There are substantial cost savings if Karyn buys the tea in larger quantities but she would need to store the tea somewhere. She estimates the tea cost per pack would drop to $6 per pack in this scenario but she would need an extra $5,000 to finance the inventory.

Karyn is unsure about getting larger and she has contacted your company, UTS Startup Finance Consulting, to help answer her questions.

How much more does Karyn have to sell to make it worthwhile to hire someone and get a warehouse? (3 marks)

Making a budget forecast for Karyn's tea club different scenarios capturing all the options detailed above. (6 marks)

In the different scenarios how much money does Karyn need to finance the business? (3 marks) Ensure your assumptions are clearly stated.

Compare and contrast different options for Karyn to finance the business. (3 marks)

Making a memo to Karyn that compares and contrasts the current size and a larger sized tea business. Ensure you detail any financial risks that are present in the business. (3 marks)

Under what combination of scenarios and volume will Karyn be able to hire someone to work 2 days per week (approximately $2,000 total cost per month)? (2 marks)