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Liz and Les have set themselves the objective of managing Bluebell's finances more effectively - Edexcel - A-Level Business - Question 2 - 2022 - Paper 2
Question 2
Liz and Les have set themselves the objective of managing Bluebell's finances more effectively. They are considering whether to focus more on improving cash flow or ... show full transcript
Worked Solution & Example Answer:Liz and Les have set themselves the objective of managing Bluebell's finances more effectively - Edexcel - A-Level Business - Question 2 - 2022 - Paper 2
Step 1
Evaluate the option of improving cash flow
Answer
Improving cash flow is crucial for Bluebells given its seasonal nature. The business peaks between May and September, generating most of its income during this period. If cash flow is not managed efficiently, Bluebells risks facing cash shortages in the off-peak months, which could affect its ability to meet day-to-day expenses. Les and Liz already recognize the importance of careful financial planning, suggesting that they are aware of cash flow issues. By prioritizing cash flow, they can ensure that there are sufficient funds available to cover costs, particularly during the slower winter months. A solid cash flow management strategy will enable them to reinvest in the business during peak seasons and maintain necessary operating levels.
Step 2
Evaluate the option of increasing profit
Answer
Increasing profit is vital for Bluebells as it strives to ensure long-term success. Profitability would allow Les and Liz to reinvest in their business, enhancing its attractiveness and efficiency. Given the competitive nature of the holiday accommodation market, it is imperative that Bluebells differentiates itself. This could involve investing in marketing or improving services to attract more customers year-round. Focusing on profit also serves as a reward for the risk they took in investing in the business. However, this may require initial cash flow sacrifices, as they could be tempted to cut costs that might actually enhance income in the longer term.
Step 3
Recommendation
Answer
In the short term, Bluebells should prioritize improving cash flow to survive the off-peak period. They can achieve this by utilizing profits from peak months and making prudent financial plans for the slower season. In the long term, however, increasing profit should become a major focus as it allows the business to grow and adapt in a competitive market. By balancing both options, Liz and Les can ensure the sustainability of Bluebells while maximizing potential profits.