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Liz and Les have set themselves the objective of managing Bluebells' finances more effectively - Edexcel - A-Level Business - Question 2 - 2022 - Paper 2
Question 2
Liz and Les have set themselves the objective of managing Bluebells' 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 Bluebells' finances more effectively - Edexcel - A-Level Business - Question 2 - 2022 - Paper 2
Step 1
Evaluate improving cash flow
Answer
Improving cash flow is crucial for Bluebells, especially as it operates in a seasonal market. The majority of cash inflows occur between May and September, meaning that during the off-season, such as December to February, the business must ensure it has sufficient funds to cover its fixed costs. If Bluebells focuses on cash flow, it will enhance its financial stability, allowing it to meet day-to-day expenses and prepare for the high season.
Moreover, maintaining a positive cash flow position is essential for operational efficiency and can prevent long-term debt accumulation. Proper financial planning and reinvesting profits could significantly improve cash flow management.
Step 2
Evaluate increasing profit
Answer
Increasing profit is also an important objective for Liz and Les. Greater profits can provide additional funds for reinvestment, which is vital in a competitive market such as holiday accommodation. This could involve enhancing marketing efforts, improving property standards, or investing in new facilities that will attract more guests.
Moreover, as the business has a good reputation, the demand for its services suggests that increasing profitability could lead to sustainable growth. Investing profits back into Bluebells not only secures its market position but can also improve the overall guest experience, ultimately leading to higher occupancy rates during peak seasons.
Step 3
Recommendation
Answer
In conclusion, while both improving cash flow and increasing profit are significant objectives, Liz and Les should prioritize improving cash flow in the short term. Given the seasonal nature of their business and the need to cover fixed costs during the off-peak months, adequate cash flow management will ensure the survival of Bluebells.
Once they have achieved stable cash flow, they can then shift their focus towards strategies for increasing profit, ensuring that Bluebells remains competitive and continues to thrive in the long run.