Business (AS & A Level) · Oct / Nov 2023 · Paper 23 · Question 1

Jake’s Cakes (JC) Jake started baking cakes while at university. He baked cakes for friends’ birthdays and other celebrations. He posted pictures of his cakes on social media sites where they received very positive feedback and were widely shared. In 2021 Jake started JC, a small business, using his parents’ kitchen. JC bakes cakes and sells them online. Jake created a website where customers design and order unique cakes. Jake uses digital promotion as the main method of promoting his products. JC has only used retained earnings to invest in marketing and new equipment. In 2023, Jake made a cake for a celebrity who shared JC’s social media posts with their social media followers. As a result of this an investor approached Jake. The investor offered to provide a $25 000 capital investment to help Jake grow the business. However, Jake does not want to take on an equal partner. Jake is considering a different plan for growth. His parents have agreed to let him convert their garage into his commercial kitchen. He has prepared a business plan and applied for a bank loan of $15 000 to finance this growth. He has produced a cash flow forecast for the first quarter of 2024. Table 1.1: JC’s cash flow forecast 2024 ($ 000) Jan Feb March Cash inflow Bank loan 15 0 0 Cash sales 2.5 2.6 5 Total inflow 17.5 2.6 5 Cash outflow Fixed costs 20 1.5 1.5 Variable costs 0.5 0.6 0.8 Total outflow 20.5 2.1 2.3 Net cash flow (3) 0.5 Opening balance 2 (1) Closing balance (1) (0.5) 5 10 15 20 25

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