1. 1
Student no: 7239603
THE CENTRAL MANCHESTER SCHOOL OF ENGLISH
Name: Nicola Hornsby
Student Number: 7239603
Degree Programme: Spanish and Business & Management
Course Title: BMAN31212 Investment Economics
Executive Summary
Payback 7 years
Discounted Payback 8 years
ROCE (Initial cost) 14.05%
ROCE (Average Cost) 27.92%
IRR 16%
NPV £241,000
The report analyses the possibility of an investment into the creation of an English language school
in central Manchester, England.
Based on the expectation that the English Language Training market is set to continue growing
steadily over the next few years, the project aims to establish a school consisting of 18 classrooms
capable of serving 540 students per annum.
The project is designed to be developed in two stages, with the refurbishment of 9 classrooms in the
first year, and then a further 9 in the project’s 3rd
year. The school’s development has been
organised in this way in order that its capacity increases in line with the amount of students it is
expected to receive.
Careful analysis of the financial workings of the project exposes its sensitivity to a number of cost
and revenue assumptions- most importantly the assumptions made about course selling price and
labour and advertising expenditure. After consideration of these sensitivities, and of the results of
the 6 financial indicators displayed above, it is advised that investment not be undertaken without
further examination and improvement of the project’s vulnerable areas. Recommendations include:
an attempt to further streamline the staff base, more thorough investigation into likely advertising
costs, an increase in the schools capacity in order that it can capture more of its potential market.
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Student no: 7239603
CONTENTS
Introduction 3
Project Description 3
English Language Training Market 3
Market Size and Revenue Projections 4
Project Management and Cost
Assumptions
5
Graphical Summaries 8
Financial Analysis 9
Key indicators 9
NPV Sensitivity to Discount Rate 9
NPV Sensitivity to Revenue Assumptions 10
NPV Sensitivity to Cost Assumptions 11
Monte Carlo Analysis 12
Recommendations 13
Excel Model 14
Appendix 17
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Student no: 7239603
INTRODUCTION
This report analyses the profitability of undertaking the creation of an English language school in
Manchester, England. Firstly, the English Language Teaching (ELT) market is examined in order to
situate the project in a current context, identifying key competitors and projecting future market
size. Secondly, the workings of the project are outlined in more detail, including a description of the
how the project will develop and an explanation of the costs and revenue streams. To finalise the
report a financial analysis of the project is carried out, using an excel model, in order to calculate
various financial indicators and identify sensitivities in the project. From this information appropriate
recommendations regarding investment in the project are formed.
PROJECT DESCRIPTION
The project analysed in this report is the creation of an English language teaching school, “The
Central Manchester School of English”, in the centre of Manchester, England. The finished school will
consist of 18 classrooms and will employ 26 permanent staff, with the capacity to accommodate 540
students. In order to achieve this, an investment of £800,000 is required.
The school will be designed for and marketed towards overseas students wishing to study for a
substantial period of time in England. The business model follows the conventional structure for
private language schools of this kind, in which students may book to study at the school for as many
weeks as they would like, starting on any Monday and finishing on any Friday. Evidently, as there are
no fixed start or end dates for courses, the school must be extremely flexible in order to
accommodate varying class sizes from week to week, and also to manage to the significant seasonal
variation in the influx of students, with the summer months being considerably more popular.
In order to handle the disparity between the number of school applicants throughout the year the
staff base will consist of a number of permanent staff (proportionately linked to the amount of
students expected to attend the school during the winter), with temporary staff hired in the summer
to capacitate the training of more students.
English Language Training (ELT) Market
There are currently around 950 privately run ELT organisations operating in the UK1
. As the school’s
target consumers are overseas students, it will be in direct competition with these schools and the
majority of its marketing material will be directed outside of the UK. Like its competitors, the school
will provide an accommodation booking service, using links with hotels and apartment rental
agencies to simplify the customers’ booking experience (i.e. when the student books 12 weeks of a
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Student no: 7239603
course they will also be able to books accommodation via the school) however the school will not
profit from these arrangementsi
.
Within Manchester itself there are at least 14 language training centres2
, with the Manchester
Central School of English and the Manchester Academy of English at the higher end of the market,
charging over £200 a week for 20 hours of teaching3
. Although the eventual aim of the project would
be to establish itself in this higher spectrum of the market, the investment model presented in this
report is based on average projections, using average market prices and average number of students
per school, in order to give a realistic overview.
Market Size and Revenue Projections
Based on figures gathered from 2005-2009, the ELT market is predicted to steadily increase over the
next few yearsii
.
Figure 1
Source: BIS Report
These figures present favourable market conditions for the project, with steady growth in the
amount of potential customers.
In order to gradually increase the amount of sales achieved by the school in first few years, an
alterable “sales increment value” has been used which can be raised or lowered in order to speed up
or slow down how long it takes for the school to reach capacityiii
. In the best run of the model the
school reaches capacity in year 6, serving 540 students per annum (a figure which is eventually
i
See appendix for more details.
ii
See appendix ii for explanation of projections
iii
See appendix iii for explanation of increment value
0
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2004
2005
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2022Schools/Students
Calendar Year
Average Number of Students and Number of ELT Schools
No of schools
Avg students per
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Student no: 7239603
decreased due to the load factor). As shown by figure 2, if the project were to continue substantial
resizing would be beneficial in order to capture more of the potential market.
Figure 2
The chosen selling price for one week’s tuition (total of 20 hours) at the school is £170, based on the
average prices of competitors in the Manchester areaiv
.
The average length of stay of students has been set at 12 weeks; a figure taken from a report carried
out by the Department for Business Innovation and Skills in 20114
.
Revenues will accrue at the beginning of project year 2, calendar year 2014, when the school is
expected to cater for around 250 students throughout the year (about 20% of the amount that the
average language school in Manchester will serve in the same year).
Project Management and Cost Assumptions
The project is scheduled to begin on 01.07.2013 and run for 10 years after which it will be
terminated. The set-up of the school will take place in two stages; 12,000 sq ft will be leased from
the beginning of year 1, however the space will only be refurbished to provide 9 classrooms at this
time. In year 4 a further 9 classrooms will be developed, ready for opening in project year 5 (2016).
This decision has been made in order to control cash flows. Since it will most likely take a few years
for the school to establish itself in the market and therefore attract a good number of students
having 18 classrooms operating in the first 3 years is not necessary. With the sales increment value
set at 0.2, resizing to 18 classrooms in year 4 is advisable.
A detailed description of the project’s development is shown by figure 3.
iv
See Appendix iii for calculation of average selling prices.
0
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2004
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Students
Calander Year
Average Number of Students per School vs Students Captured
Avg students per
school UK
Students
captured by
project school
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Student no: 7239603
01/07/2013 15/07/2013 29/07/2013 12/08/2013 26/08/2013 09/09/2013 23/09/2013 07/10/2013 21/10/2013 04/11/2013 18/11/2013 02/12/2013
PHASE 1: Managerial, Legal And Professional
Manager Commence: Setup Legal, Bank, etc
Select Temporary Accomodaton
Appoint Professional Advisors
PHASE 2: Admin Staff
Hire temporary staff
Admin Staff: Job Specificaion, Adverts
Interview, Select candidates, offer, accept
Serve notice periods
Admin Staff Commencement
PHASE 3: Premises and Fitout
Select Premises
Specifiy Fitout Details
Issue ITT
Analyse response
Negotiate and Conclude Contract
Fitout Period
PHASE 4: Marketing
Advertise, Interview & Hire
Develop Capaign Materials
Develop Website Copy for Web Site
PHASE 5: Web
Specify Design Brief (Mkting)
Research Suppliers, Issue ITT
Analyse Reponse and Place Order
Lead Time until Delivery
Install
Test and Rework
PHASE 6: Teaching Staff
Teacher Job Specification, Place Advertising
Interview, Select candidates, offer, accept
Serve Notice Periods
Teachers Commence: Course Preparation
Figure 3: GANTT Chart
Labour, marketing and rental costs constitute the main capital outflows from the business. Figure 4
shows the flow of costs over time.
Figure 4
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0
1 2 3 4 5 6 7 8 9 10
£
Thousands
Project Year
Cost Projections
Labour Costs Design Costs Fixed Costs Variable Costs Total Costs
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Student no: 7239603
Labour costs increase with time as the quantity of teachers employed is linked directly to the
amount of students served by the school in any particular year. Furthermore, the amount of
administrative staff employed also depends on the amount of students which enter into the school
as it has been linked proportionally to the amount of teachers hired. This ensures an efficient
business model, as money is only being spent on labour when it is required.
Figure 5 shows number of staff hired over the 10 year project.
Figure 5: Number of Staff Hired
Project year 1 2 3 4 5 6 7 8 9 10
Full-time
teachers
0 4 8 9 16 18 18 18 18 18
Part-time
teachers
0 4 1 0 2 0 0 0 0 0
Receptionists 0 1 1 1 1 1 1 1 1 1
Cleaning
Services
0 1 1 1 1 1 1 1 1 1
Marketing
Executive
0.5 1 1 1 1 1 1 1 1 1
Accountant 0 1 1 1 1 1 1 1 1 1
Manager 0.5 1 1 1 1 1 1 1 1 1
Extra Staff
dependent
on volume of
teachers
0 1 1 1 3 3 3 3 3 3
Total Staff
employed
1 14 15 15 26 26 26 26 26 26
Rental has been charged at £27 per sq ft (including rates), based on a quote given by Right Move for
the lease of commercial property in central Manchesterv
. A central location is important in order to
aid the attraction of students to the school.
Advertising costs are set to increase proportionately as business size increases, ensuring the
retention of a satisfactory market share. A more detailed description of the project’s costs, including
their references, can be found in the appendixvi
.
v
See appendix for reference description
vi
See appendix vi- Costs
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Student no: 7239603
Graphical Summaries
Figure 6
Here one can clearly see how costs increase in line with revenue. The leap in revenue in year 4 is due
to the 9 new classrooms coming into operation, enabling the school to capture more of its potential
market. The revenue inflows level out at year 5 when the school reaches capacity.
Payback is in the 7th
year, although in the discounted model payback falls in the 8th
year, presented
in figure 7 below. Discounted payback is delayed by the fact that revenue streams in the first few
years of the project are substantially smaller than those achieved in the final years, following the
expectation that it will take a number of years for sales to reach their maximum point.
Figure 7
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Project Year
Project Overview- Costs and Revenues
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COSTS
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Project Year
Discounted Project Overview- Costs and Revenues
Undiscounted net
cash flow
Discounted net cash
flow
Discounted
cumulative benefit
Undiscounted
cumulative benefit
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Student no: 7239603
FINANCIAL ANALYSIS
Key Indicators
Figure 8 presents a summary of the main indicators used to analyse this project.
Figure 8: Key Indicators
Payback 7 years
Discounted Payback 8 years
ROCE (Initial cost) 14.05%
ROCE (Average Cost) 27.92%
IRR 16%
NPV £241,000
Return on initial capital employed has been calculated using the maximum working capital required
during the project (which falls in year 5). This produces a reasonable ROCE in absolute terms but
considering the start-up (and hence risky) nature of the business it may not be high enough to justify
investment.
A way of reducing the absolute requirement of cash for the project, and hence increasing ROCE,
would be negotiate with the landlord in that he finance the fit-out of the 18 classrooms, with the
compromise of higher rent (at around £29 per sq ft). This would reduce the initial capital employed
by around £200,000, effectively redistributing it throughout the 10 years of the project, increasing
ROCE to 19% and reducing discounted payback to 7 years.
NPV Sensitivity to Discount Rate
Figure 9
-400,000
-200,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
0% 5% 10% 15% 20% 25% 30% 35%
Axis Title
Axis Title
NPV vs Discount Rate
NPV
10. 10
Student no: 7239603
This figure shows that using a discount rate of 10% the project has a positive NPV of just over
£200,000- a reasonable return for a £700,000 investment. However as the business is a start-up, to
account for increased risk it would probably be more appropriate to use a higher discount rate, say
15%, bringing the NPV closer to 0 and ultimately making investment in the project a less appealing
prospect.
Likewise the relatively high IRR of 16% is necessary for a project of this kind, as its sensitivity to
certain factors cause it to entail a substantial amount of risk. This will be further discussed in the
following section.
NPV Sensitivity to Revenue Assumptions
Figure 10 shows NPV sensitivity to course price per week, and to the value which determines how
quickly sales increase during the first few years of the project (the “sales increment” value).
Figure 10
vii
This clearly demonstrates that the project is extremely sensitive to changes in course price, making it
imperative that a selling price close to £170 (the market average) is reached. The NPV becomes
negative when a week’s course is sold at less than £164. However although this sensitivity can be
perceived negatively, one must consider that it also opens up the opportunity to make sizeable
profits if the school successfully markets itself at the higher end of the spectrum, enabling it to
charge higher prices. The success of this will depend greatly on the abilities of the marketing staff,
who will require a generous marketing budget (discussed in next section).
vii
See appendix for further analysis of graph
-400%
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-200%
-100%
0%
100%
200%
300%
400%
-40% -30% -20% -10% 0% 10% 20% 30% 40%% Change in
Aasumption
% Change in NPV
NPV Sensitivity to Course price and
Sales Increment
Course price per
week (£)
Sales Increment
11. 11
Student no: 7239603
If course prices fail to meet the market average of £170 these losses could also be appeased by
increasing the maximum students in each classroom, therefore boosting the revenue stream, but
generally the market will not bear more than 15 students per class as this is the competitors’
maximum.
High NPV sensitivity to the sales increment value is expected, as this value affects revenues in the
near future, whereas those further away will stay at a similar level when an optimum level of sales is
reached. As it is difficult to predict how effective the school will be in attracting customers in its early
years, the increment value has been varied by 30%.
NPV Sensitivity to Cost Assumptions
Figure 11
Figure 11 shows NPV sensitivity to the three largest costs in the project: advertising, labour and rent.
The NPV of the project is highly sensitive to the level of advertising expenditure as this cost
constitutes a large portion of total costs. The advertising budget has been set at a generous 16% of
turnover as it can be noted that the two most sensitive revenue variables, selling price and sales
increment, depend heavily on successful marketing. As there is great uncertainty regarding what
level of expenditure on advertising is necessary to ensure that sales in first few years increase
according to plan, and that the school is able to sell its services at the average price, the budget has
been varied by 20% in this analysis.
NPV sensitivity to labour costs is also extremely high. When looked at in a positive light this allows
for gains to be made if a way to effectively control labour costs is found. The model is already
sufficiently streamlined in terms of capital spent on employing teachers, but it lacks greater
-300%
-200%
-100%
0%
100%
200%
300%
-30% -20% -10% 0% 10% 20% 30%
Axis Title
Axis Title
NPV Sensitivity to Cost Assumptions
Advertising as % of
turnover
labour costs
Rent and rates per
sq ft
12. 12
Student no: 7239603
investigation into the likely administrative costs which the school will require, so a closer look at this
area is essential.
NPV sensitivity to rental price has been included in this graph in order to make evident that
achieving a lower rental price, for example by locating the school outside of the city centre, would
not benefit the project as much as looking for a way to control costs would. Considering that moving
the school’s location to the more cost efficient outskirts may have an incredibly detrimental effect
on its revenue streams by reducing its competitiveness, it is not recommended.
Monte Carlo Analysis
Figure 12
This analysis suggests that the project is not worth investment, with the most likely NPV being
situated between £-80,000 and £75,000, or on average just below 0. The risks and rewards
encountered in the model seem to eventually balance each other out, implying that the return of the
project is probably not higher than the discount rate, so in order to make the investment worthwhile
one would have to improve on some of the cost and revenue parameters. A summary of suitable
recommendations follow.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
-3800:-3645
-3490:-3335
-3180:-3025
-2870:-2715
-2560:-2405
-2250:-2095
-1940:-1785
-1630:-1475
-1320:-1165
-1010:-855
-700:-545
-390:-235
-80:75
230:385
540:695
850:1005
1160:1315
1470:1625
1780:1935
2090:2245
2400:2555
2710:2865
3020:3175
3330:3485
3640:3795
3950:4105
4260:4415
4570:4725
4880:5035
5190:5345
Frequency
NPV £ Thousands
Probability Distribution of NPV
13. 13
Student no: 7239603
Recommendations and Conclusion
Firstly it must be noted that there is a sizeable market for English Language Training, and it is
growing year on year. This could be taken advantage of if the project’s terminal size was increased,
with the creation of more classrooms in order to acquire more revenue.
With regards to the risky elements of the project, it would be advisable to carry out research into the
advertising costs necessary to ensure that course prices can remain above average, and that sales
increase rapidly over the first few years. If this figure were to be quoted with more certitude then
the uncertainty surrounding three of most sensitive variables (advertising, course price, sales
increment) would be decreased, hence making it clearer whether investment is sensible.
The fourth risky element, labour costs, could be reduced by the realisation of a thorough study of
staff planning, with a view to keeping costs as low as possible.
The option of increasing maximum class size to 16 should be considered. Perhaps the execution of
appropriate market research would be beneficial in order to clarify to what extent larger class sizes
discourage students from studying at a particular school.
Finally, consider the possibility of arranging with a landlord that he cover the costs of the initial fit
out at the compromise of higher rent in order to decrease the initial capital requirement of the
business. The downside to this arrangement may be that you would most likely be committed to a
longer lease, with no break clause at the end of year 5- so the school’s success would be crucial.
To conclude, investment in the project as it stands is not recommended. For investment to be
worthwhile the aforementioned areas must be explored in more detail.
References
1. English UK (2013), Accredited Schools [Online]. Available at: http://www.englishuk.com/ [Accessed
06/04/13]
2. English UK North (2013), English UK North [Online]. Available at:http://www.englishuknorth.com/the-
north-of-england/manchester/ [Accessed 06/04/13]
3. Manchester Central School of English (2013), Fees, [Online]. Available at:
http://manchestercse.co.uk/fees-dates and Manchester Academy of English (2012), Courses
[Online]. Available at: http://www.manacad.co.uk/fees.htm [Accessed 06/04/13]
4. Conlon, G., Litchfield, A., Sadlier, G. (2011), Estimating the Value to the UK of Education Exports
[Online]. Available at: http://exeduk.com/wp-content/uploads/Estimating-the-Value-to-the-UK-of-
Education-Exports-BIS-Research-Paper-No.-46.pdf. [Accessed 14.03.2013]
14. 14
Student no: 7239603
MODEL
Student Name Nicola Jane Hornsby
Student ID 7239603
Course Spanish and Business and Management
ASSUMPTIONS
Revenue Assumptions
UNIT
Max number of students per class Persons 15
Average stay of student Weeks 12
Price of course per week (alterable) £ 170
Discount rate 0.1
Load factor % 0.85
Sales increment 0.2
Cost Assumptions
GENERAL COST ASSUMPTIONS
UNIT
Rent and rates per sq ft £ pa 27
Size of school sq ft 12000
Business insurance % of turnover 1%
Equipment Maintenance % of capital equipment 0.5%
Recruitment cost % of salary 10%
Advertising cost % of turnover 16%
Extra admin staff per teacher people pa 0.25
DESIGN COSTS
Initial Cost (£) Cost pa (£)
General Refurbishment 200000
Furniture
Tables 5355
Chairs 3600
Cork boards 810
Whiteboard 900
Plant 1080
projector ceiling mount 900
TOTAL FURNITURE 12645
Equipment
Projector screen 630
Water machine 810
Photocopier/printer 788
Desktop computer 5940
Projectors 3150
TOTAL EQUIPMENT 11318 57
FIXED COSTS
Rent 324,000
Internet connection 100 500
Website 2000 1000
Legal bills 4000 2,000
Service Charge 36000
Public liability insurance 100
Accreditation 750
LABOUR COSTS
Full time teacher 29000
Part time teacher 17000
Receptionist 18000
Cleaning services 15000
Marketing Executive 27000
Accountant 35000
Manager 40000
VARIABLE COSTS
Running one classroom for one week Price per unit (£)
Consumption per
classroom pw £ per classroom week
Water refills 7.5 1 7.5
Photocopy costs per sheet 0.36 75 27.0
Textbooks 15 1.25 18.8
Workbooks 0.75 1.25 0.9
Additional Electricity 10.0
Additional Heating 10.0
TOTAL £ PER CLASSROOM WEEK 74
INDICATORS
Payback 7.0 years
Discounted Payback 8.0 years
ROCE (Initial cost) 14.05 %
ROCE (Average cost) 27.92 %
IRR 16%
NPV 241,000 £
16. 16
Student no: 7239603
DETAILED REVENUE ASSUMPTIONS
ASSUMPTIONS OF HOW MANY STUDENTS RECEIVED
Average amount of students received by ELT Schools in England
PROJECTIONS
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total no. of students 838,178 934,489 1,014,287 1,074,284 1,152,580 1,233,343 1,310,203 1,387,063 1,463,923 1,540,783 1,617,643 1,694,503
No of schools 834 834 834 834 834 863 892 921 950 979 1,008 1,037
Avg students per school 1,005 1,120 1,216 1,288 1,382 1,429 1,469 1,506 1,541 1,574 1,605 1,634
Increase in schools per year 29
2016 2017 2018 2019 2020 2021 2022
1,771,363 1,848,223 1,925,082 2,001,942 2,078,802 2,155,662 2,232,522
Maximum number of students per class 15 1,066 1,095 1,124 1,153 1,182 1,211 1,240
Average length of stay (weeks) 12 1,662 1,688 1,713 1,736 1,759 1,780 1,800
Price of course per week (dependent) 170
Summer term weeks 24
Winter term weeks 24
Calender year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Project Year 1 2 3 4 5 6 7 8 9 10
Discount Year 0 1 2 3 4 5 6 7 8 9
FOR THE AVERAGE UK SCHOOL
Average no. of students for UK school 1574 1605 1634 1662 1688 1713 1736 1759 1780 1800
Average no. of students summer UK school 1049 1070 1089 1108 1125 1142 1158 1172 1187 1200
Avergage no. of students winter UK school 525 535 545 554 563 571 579 586 593 600
FOR PROJECT SCHOOL
% of average school applicants achieved 0.00 0.20 0.40 0.60 0.80 1.00 1.00 1.00 1.00 1.00
Average no. of potential students for PROJECT school 0 321 654 997 1350 1713 1736 1759 1780 1800
Average no. of potential students summer PROJECT school 0 214 436 665 900 1142 1158 1172 1187 1200
Average no. of potential students winter PROJECT school 0 107 218 332 450 571 579 586 593 600
Max number of students per class 15 15 15 15 15 15 15 15 15 15
Number of classrooms 0 9 9 9 18 18 18 18 18 18
No. of students received summer LIMITED TO CLASSROOMS 0 214 270 270 540 540 540 540 540 540
No. of students received winter LIMITED TO CLASSROOMS 0 107 218 270 450 540 540 540 540 540
Total number of students received each year 0 321 488 540 990 1080 1080 1080 1080 1080
DATA COLLECTED (Source: BIS Report)
DETAILED COST ASSUMPTIONS
Full time teacher 29000 31900
Part time teacher 17000 18700
Receptionist 18000 19800
Cleaning services 15000 16500
Marketing Assistant 27000 29700
Accountant 35000 38500
Manager 40000 44000
Avg salaries for management and admin staff 29,700
Number of teachers needed summer 0 7.13 9.00 9.00 18.00 18.00 18.00 18.00 18.00 18.00
Number of teachers needed winter 0 3.6 7.3 9.0 15.0 18.0 18.0 18.0 18.0 18.0
Increase in average number of teachers employed since start 0 6.0 2.5 3.0 11.0 12.0 12.0 12.0 12.0 12.0
Full-time teachers employed 0 4 8 9 16 18 18 18 18 18
Part time teachers employed 0 4 1 0 2 0 0 0 0 0
Receptionists employed 0 1 1 1 1 1 1 1 1 1
Cleaning services 0 1 1 1 1 1 1 1 1 1
Marketing Executive 0.5 1 1 1 1 1 1 1 1 1
Accountant 0 1 1 1 1 1 1 1 1 1
Manager 0.5 1 1 1 1 1 1 1 1 1
Extra staff dependent on volume of teachers 0 2 1 1 3 3 3 3 3.00 3.00
Total labour cost pa 36850 395450 440963 457875 777975 811800 811800 811800 811800 811800
Number of classrooms in use pa 0 8 9 9 18 18 18 18 18 18
Design Costs
Furniture Price per unit (£) Quantity per £ per classroom
Tables 70 9 595
Chairs 25 16 400
Cork boards 30 3 90
Whiteboard 100 1 100
Plant 60 2 120
Pojector ceiling mount 100 1 100
TOTAL FURNITURE 1405
Equipment
Projector screen 70 1 70
Water machine 90 1 90
Photocopier/printer 350 0.25 88
Desktop computer 330 2 660
Projectors 350 1 350
TOTAL EQUIPMENT 1258
Size of school
Room Quantity Size (Sq ft) Total (Sq ft)
Classroom 18 350 6300
Reception 1 600 600
Staff room 3 400 1200
Common room 2 400 800
Toilets 6 300 1800
Corridors 1 400 400
Prayer room 1 200 200
Storage 1 100 100
Contingency 1 600 600
School Total (Sq ft) 12000
17. 17
Student no: 7239603
APPENDIX
i. An interview with LILA Language School
On interviewing the manager LILA Language school I was able to gain an insight into the business
operations of one of my main competitors. They informed me that they make very little or no
revenue from matching students with accommodation as the market is competitive and it doesn’t
allow for this. They did mention that in quiet periods they may be able to charge a small booking fee,
but as this seems negligible I did not include it in my model.
ii. Market size
The expected number of school applicants has been calculated using market projections based on
statistics from 2005-2009, taken from a report written by the Department for Business Innovation
and Skills (see reference 4). The table below shows the number of students which have studied at
English Language Training schools throughout these years.
These figures have been used to project likely future market size, and therefore average amount of
students per school, adjusting for an increase in ELT organisations in the UK. Future market size (in
number of students) was estimated by continuing the series in excel:
The amount of ELT schools was increased by taking the 2008 figure (of 834 schools) and using an
estimate of the current amount of ELT schools in the UK to generate the average increase of schools
per year. The current estimate of ELT schools is based on a figure found at
http://www.englishuk.com/ (see reference 2) which confirms that there are currently 450 accredited
schools in the UK. The BIS report states that in 2008 there were 444 accredited schools, and 390
18. 18
Student no: 7239603
other privately run, non-accredited schools. Using these figures I was able to calculate that the
number of ELT organisations increases by roughly 29 schools each year. This is an assumption which
can be changed in the spread sheet model.
iii. Sales increment value
The sales increment value alters the speed at which the school reaches its capacity. Effectively it
alters a line in the spread sheet (line 36, sheet name: Detailed Assumptions) which determines what
percentage of the average number of students per school the school achieves in each of the first few
years.
For example, in the first year of the project when the school is open (calendar year 2014), market
projections predict that the average UK ELT school will serve 1574 students. However, as this is the
first year of The Central Manchester School of English’s operation, it is likely that it will only succeed
in serving about 20% of this average; hence 1574 is multiplied by 0.20 to attain the amount of
students received by the project school.
In the best run, by project year 6 (2018) the school is expected to be well established and able of
attracting the amount of students that an average school would attract. However, the school is
unable to serve all of this available market of 1713 students as it is limited by its capacity of 540.
If the sales increment value is increased, the rate at which sales increase year on year is increased.
For example, by changing the increment value to 3, the school attracts the average amount of
students for a UK ELT school by year 5 as opposed to year 6.
iv. A.- Course prices
School Price per hour
(£)
Price 20 hour week
(£)
Reference
Manchester
Academy of English
11.50 230 Manchester Academy (2013), Fees,
[Online] Available at:
http://www.manacad.co.uk/fees.ht
m [Accessed: 8.04.2013]
Manchester central
school of English
10.25 205 Manchester Central School of
English (2013), Fees-Dates, [Online]
Available at:
http://manchestercse.co.uk/fees-
dates [Accessed: 8.04.2013]
Lila Language
School
8.75 175 Lila Language School (2013), Course
prices, [Online]Available at
http://www.lilalovetolearn.com/co
ntent/course-prices [Accessed:
8.04.2013]
19. 19
Student no: 7239603
Communicate
English
6.75 135 Communicate English school (2013),
Prices, [Online] Available at:
http://communicate-
school.co.uk/prices [Accessed:
8.04.2013]
Excel College 6.90 140 Excel College (2013), Prices, [Online]
Available at: http://www.excel-
college.com/downloads/PricePayPD
FAPRIL2013.pdf [Accessed:
8.04.2013]
Apex 7.30 150 Apex School (2013), Course Fees,
[Online] Available at:
http://www.apexcollege.org.uk/cou
rse-fees.html [Accessed: 8.04.2013]
AVERAGE 8.50 172
B.- Course price change
Course prices change depending on the length of stay of the students. The following table to shows
how much price changes with relation to weeks of students’ stay in the surrounding schools in
Manchester. It averages at £1 a week. This has been included so that price changes were taken into
account when running a sensitivity analysis of NPV to average length of student’s stay (although this
analysis was not eventually included in the main report due to word limit!).
v. Right Move reference- Phone call
On calling Right Move Manchester I was informed that in order to rent 12000 sq ft of commercial
property in Manchester city centre I would be charged around £24 per sq ft. This did not include
business rates which I have added at £3 per sq ft. I was informed that the service charge (covering,
heat, electricity, gas, day to day maintenance and cleaning of common elements of the building)
would be around £3, and this has been added as a separate cost in the spread sheet.
School
Price for 1 week
(£)
Price for 12
weeks (£)
Difference (£)
Manchester
Independent School
205 205 0
Manchester central
school of English
212 205 7
Lila Language School 185 170 15
Communicate English 150 135 15
Excel College 165 140 25
Apex 160 150 10
Average 179.5 167.5 12
20. 20
Student no: 7239603
vi. Costs
ITEM COST DETAILED
COST
DESCRIPTION
REFERENCE
Labour Costs All labour
costs include
13% National
Insurance
All labour costs found at:
Brand Republic (2012) The
BrandRepublicJobs Salary Checker
[Online] Available at:
http://salaries.jobs.brandrepublic.com
[Accessed: 12.03.2013]
Full-time teacher £29000 pa
Part-time teacher £17000pa
Receptionist £18000pa
Cleaning Services £15000pa
Marketing Executive £27000pa
Accountant £35000pa
Manager £40000pa
Advertising 16% of
turnover
A variable cost
which
increased with
turnover
Could not find a figure for this so have
used an estimation based on
recommendations of the director of a local
business
Design Costs
General Refurbishment Office Principles (2013) Cost Calculator
[Online] Available at:
http://www.officeprinciples.com/cost-
calculator.html [Accessed: 12.03.2013]
Furniture and Equipment
Tables Cost Cutter (2013), Economy classroom
tables [Online] Available at:
http://www.costcuttersuk.com
[Accessed:15.03.2013]
Chairs Cost Cutter (2013), Four legged chairs
[Online] Available at:
http://www.costcuttersuk.com
[Accessed:15.03.2013]
Projectors Projector Shop 24 (2013) School Projector
[Online] Available at:
http://www.projectorshop24.co.uk/
[Accessed:15.03.2013]
Textbooks Amazon UK (2013) Animo Spanish
Grammar [Online] Available at:
http://www.amazon.com
[Accessed:15.03.2013]
Whiteboard Display sense (2013), Whiteboard Ultra
Smooth Magnetic [Online] Available at:
http://www.displaysense.co.uk/
21. 21
Student no: 7239603
[Accessed:15.03.2013]
Website Toucher (2013) Website Cost, [Online]
Available at:
http://www.toucher.co.uk/website_cost.h
tm [Accessed:15.03.2013]
Photocopier/printer Euro Office (2013) Brother MFC Colour
Multifunction Laser Printer [Online]
Available at: http://www.euroffice.co.uk
[Accessed:15.03.2013]
Desktop Computer http://www.euroffice.co.uk
Sofa Nabru (2013) Ato 2 seat sofa [Online]
Available at: http://www.nabru.co.uk
[Accessed:15.03.2013]
Plant Office Plants (2013) Bonobo Plant [Online]
Available at:
http://www.officeplants.co.uk/
[Accessed:15.03.2013]
Water Machine Eurostatic (2013) Water Dispenser 201
[Online] Available at:
http://www.eurostationers.com
[Accessed:15.03.2013]
Cork Boards Viking Direct (2013) Noticeboards [Online]
Available at: http://www.viking-
direct.co.uk [Accessed:15.03.2013]
Projector ceiling mount Projector Point (2013) Sapphire Manual
Projector Screens [Online] Available at:
http://www.projectorpoint.co.uk
[Accessed:15.03.2013]
Projector Screen Projector Point (2013) Projector
Accessories [Online] Available at:
http://www.projectorpoint.co.uk
[Accessed:15.03.2013]
Fixed Costs
Rent Right move Manchester phone call (see
appendix)
Internet Connection Sky (2013) Internet Packages [Online]
Available at: http://www.sky.com/
[Accessed:15.03.2013]
Legal bills Discussion with a small business owner
Public Liability insurance Simply Business (2013) Public Liability
Insurance, Available at:
http://www.simplybusiness.co.uk/insuranc
e/public-liability/ [Accessed:15.03.2013]
Accreditation British Council (2013) Accrediation [Online]
Available at:
http://www.britishcouncil.org/accreditatio
n.htm [Accessed:15.03.2013]
22. 22
Student no: 7239603
vii. Sales increment vs NPV
It can be noted that NPV decreases more rapidly as the sales increment value declines, but increases
less significantly with a sales increment increase. This is due to the nature of the increment value,
which only increases sales until the average sales for a UK ELT school is reached (i.e. we are not
trying to attain more than the market share) and is also further impacted by the school’s capacity
constraint.
viii. Extra staff dependent on number of teachers
This integer (set at 0.25) gives the ratio of administrative staff to number of teachers employed. It is
necessary that the number of administrative staff employed is linked to number of teachers
employed as this consequently also relates the number of administrative staff to amount of
students served by the school (given that the amount of teachers employed varies as student
quantity increases). By linking the concentration of the staff base to number of students received
by the school in any one year, more realistic assumptions of the cost and revenue streams can be
generated as labour costs will fluctuate according to demand.
ix. Scrap value
Estimated at around £5000, the sum of old projectors, furniture, course materials, desktop
computers etc.
x. Amount of students in winter vs. summer
It is assumed that 2/3 of the students that study at the school in any one year will come in summer,
with only 1/3 studying through the winter. This is based on figures obtained from a competing
language school, for which this has been the case during the last 3 years.
