Title 8. Case 8.pdf ✅

AATIK TASNEEM | O/A-LEVEL | BUSINESS & ECONOMICS | +92 304 1122845 1 P2 | CASE 8 | O/N 2023, V3 (Case 1)
AATIK TASNEEM | O/A-LEVEL | BUSINESS & ECONOMICS | +92 304 1122845 2 (a) (i) Business objective (a) (ii) Expenses that change with the level of output such as raw materials. When the output increases these costs increase and when the output falls these costs fall. for example, the flour used for cakes. (b) (i) Closing balance = Opening Balance + (Inflow – Outflow) X = (-0.5) + (5 – 2.3) = 2.2 (b) (ii) One of the human needs that can be satisfied using by operating JC would the esteem needs. Since Jake has recently received recognition from a celebrity this would allow Jake to be recognized for his work. This would lead to greater motivation of making more unique designs of cake and hopefully give him the motivation when he receives more followers and praise for his unique designs. (c) 8 MARKS Wide customer reach online > able to target more customers from cake pictures on social media + get positive feedback customers + celebrity shares > increases awareness > increases number of orders of cakes > increases revenue > more profits > easier to secure the $15000 bank loan. Cheaper than non-digital promotion > Jake is just a small business with limited finance > using digital leads to low cost > does not require the use of external agencies who may charge a fee > reduces overheads > allows JC to increase retained earnings since this is the only source for now > ensures that they rely less of loans and $25000 from investors during commercial kitchen growth > ensures that Jake does not lose ownership or has to pay interest.
AATIK TASNEEM | O/A-LEVEL | BUSINESS & ECONOMICS | +92 304 1122845 3 (d) 12 MARKS Sources of finance > Methods to raise finance for a business. Bank loans means a fixed amount of money from the bank > currently JC needs $15000 and does not want to lose control > loans allow to provide them the finance + sustain control > this can be invested to open the commercial kitchen > increase scale to meet more orders as expected > increase revenue > increase profits > help survive for a small business [However] loans can have high interest rates which reduces profits > less money to reinvest in promotion which is the main source in marketing and new equipment > increases outflow > which means he will not be able to improve his cash flow issues as shown by the negative cash flow forecast in the first two months of -1 and -0.5 > making it difficult to sustain expansion > limits future growth potential till the loan is paid off. [EVAL] Therefore a bank loan is an appropriate method as a source of finance as JC requires $15 000 so he can specifically ask for this amount from the bank to be able to reach its aim for growth. However, this also depends on whether JC is able to take a loan from the bank or not and if so whether the interest rate is affordable because if it is not affordable then the cost will increase drastically which will further affect the poor cash flow forecast negatively Investor can also be used to fund growth > $25000 is more than that JC will be able to get from the bank ($10,000 more) > able to invest to improve marketing and employ staff like chefs and managers > no financial repayment risk > all future profits can be reinvested or taken as dividends > helps to sustain the funds and reinvest in growth [However] loss of complete ownership > may have negative implications on Jake’s motivation levels > since Jake does not want to keep an equal partner > this can limit his decision regarding the method to grow > investors might be more concerned with just profits as compared to building quality > might be forced to use cheap ingredients or make more standardized cakes > damages the unique element > limit future growth. [EVAL] Therefore an investor can be helpful due to the ability for raising more money and not having to pay back the amount. However, this depends on the aim of the investors and how much control will Jack lose. If after the investment of $25000 Jack still controls more than 50% then the benefits are more likely and the drawback of losing control would be lost. FINAL EVAL (1) Overall bank loan is not the right method for JC at an early stage due to the high risk involved with loans and the amount has to be repaid. This is because the business is already facing cash flow issues and repaying them before growth matures is difficult. At this point investors will play a much significant role as not only will they give finance but also support in terms of ideas which is important for JC. (2) However, it depends on the skill of the investor. If the investor is skilled in the cake business only then is this money useful and worth losing control. (3) If the investor is just providing finance and not the skills then Jack is better of taking a loan and try to find a partner later on. (4) Overall, as a new business the start should always be with least risky options like investors but only till the point where Jack retains major control. If it is not sufficient only the remaining finance should be borrowed on interest.