Business Studies · Oct / Nov 2020 · Paper 12 · Question 3

0450

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Veronique is bored with her work in a large factory. As a creative person, she would like to leave and start up a flower shop. Veronique has asked about micro-finance and prepared a cash flow 3 forecast. An extract is shown in Table 3.1. Veronique has also carried out some market research and found out that the demand for flowers is likely to be high during festivals. She thinks she has the right characteristics to be a successful entrepreneur. Table 3.1 Extract from the cash flow forecast for Veronique’s flower shop for the first 3 months ($) Month 3 Month 2 Month 1 2000 1200 500 Cash in 1200 1400 1500 Cash out 800 (200) (1000) Net cash flow (1200) (1000) 0 Opening balance (400) (1200) (1000) Closing balance

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3(a)[2]
Define ‘micro-finance’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Provides financial services/small loans to poor people not served by traditional banks [2]
Partial definition e.g. not given by big banks [1]
Help people who can’t afford a (bank) loan [1]
Small loans to poor people [1]
2
3(b)[2]
Veronique now thinks that the cash inflow in month 3 will be $1500. Award 1 mark for each correct calculation. New net cash flow in month 3: 300 [1]
New closing balance in month 3: (900) or –900 [1]
2 New closing balance must be shown as a negative value to be credited. OFR rule will apply for new closing balance. Notes
3(c)[4]
State four reasons why a business might have cash flow problems. Award 1 mark per reason. Points might include:
Lack of demand/economic downturn/seasonal demand
Poor cash flow management/not prepared a cash flow forecast
Unable to get a bank loan/overdraft
High level of trade receivables/allowing customers (too much) credit
Not able to purchase materials on credit/pay suppliers too soon
Increase in/higher fixed costs or examples such as rent costs too high
Increase in/higher variable costs or examples such as cost of wages too high
High level of inventory/holding too much stock/buy too much stock
Overtrading/expanding too quickly
Unexpected changes e.g. machine breakdown/loss of key employees/ loss of key customer (allow only once)
Inaccurate financial information Other appropriate responses should also be credited. 4 Only award the first four responses given. Notes
3(d)[6]
Explain one method of primary market research and one method of secondary market research Veronique could have used. Award 1 mark for identification of each relevant method (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: Primary market research:
Questionnaire [k] as provides up-to-date information/specific to her business [an] about trends for festivals [app]
Interviews [k] to obtain in depth details/opinions [an] about different type of flowers [app]
Online survey [k] as more likely to get responses/can reach out to more people [an]
Focus group [k] as provides detailed information about consumer tastes/as allows for follow-up questions [an]
Observation [k] as avoids interviewer bias [an]
Test marketing [k] so the cost of any problem is limited to a smaller number of products [an] Secondary market research:
Government statistics [k] as being official would provide more accurate data [an] to help her improve her cash flow forecast [app]
Online sources/internet research [k] which is low cost/readily available [an] which can be helpful for a new business [app]
Market research agency reports [k]
Trade associations/data from similar businesses/commercial data [k] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
Flower (shop)
Festivals
Start-up /new business Other appropriate examples in context can still be credited. Notes
3(e)[6]
Do you think being creative is the most important characteristic of being a successful entrepreneur? Justify your answer. Award up to 2 marks for identification of relevant issues. Award up to 2 marks for relevant development of points. Award 2 marks for justified decision as to whether being creative is the most important characteristic of being a successful entrepreneur. Points might include: Creative:
New/unique ideas [k] to help gain sales/attract customers/maintain customer loyalty [an]
Can open up new opportunities [k]
Customers may not like the products [k] Other characteristics include:
Risk taker [k] as needs to be able to make decisions that might fail [an] otherwise will not know whether an idea is good or not [an]
Perseverance/determination [k] as will need to be prepared to keep going when faced with problems/issues that any new business is likely to have [an]
Effective communicator [k] as will need to convince to supplies/finance providers/customers to provide supplies/finance/buy goods otherwise business will not succeed [an]
Good decision-maker/management skills [k] as increases in costs/or reduction prices charged by rivals will require a response from the business [an] otherwise sales/profits may fall [an]
Hard-working [k] as must be ready to do everything themselves [an]
Optimistic [k]
Self-confident [k]
Independent [k] 6 This is a general question so there are no marks for application. For evaluation to be awarded justification will usually follow on from relevant analysis of points. An answer that only discusses other entrepreneurial skills cannot access the evaluation marks as they have not directly answered the question. Notes Other appropriate responses should also be credited. Justification might include: Being creative can result in ideas that make a business stand out from its competitors [k] leading to increased sales [an]. But it is also important to be a risk taker [k] as they need to be willing to make decisions that might fail [an]. Creativity is important but not the most important characteristic. A creative but risk averse entrepreneur may miss the opportunity to be first to market [eval] so losing the chance to gain a competitive advantage so reducing their chances of success. [eval] Notes

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