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Assess the value of historical budgeting to Les and Liz in their financial planning for Bluebells - Edexcel - A-Level Business - Question 2 - 2022 - Paper 2
Question 2
Assess the value of historical budgeting to Les and Liz in their financial planning for Bluebells. Historical budgeting: a budget based upon previous financial figu... show full transcript
Worked Solution & Example Answer:Assess the value of historical budgeting to Les and Liz in their financial planning for Bluebells - Edexcel - A-Level Business - Question 2 - 2022 - Paper 2
Step 1
Reasons why it is valuable
Answer
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Experience and Data: Bluebells has been in operation since 2006, providing Les and Liz with 16 years of historical financial data. This wealth of information can inform budgeting decisions and enhance predictive accuracy.
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Market Knowledge: Having operated within the holiday accommodation market, the owners possess extensive experience and insight. The reliability of their financial figures can significantly increase, enhancing the precision of budgeting.
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Ease and Efficiency: As a small business, Bluebells benefits from the simplicity of historical budgeting, which is generally quicker and less labor-intensive for Les and Liz to complete compared to more complex methods.
Step 2
Possible counterbalance
Answer
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Competitive Market: The holiday accommodation sector is highly competitive. Factors can change swiftly from year to year, potentially impacting occupancy rates and revenue.
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Rapid Change: Dependence on historical data may be misleading if the market dynamics shift. Utilizing zero base budgeting could encourage a more thorough examination of all expense categories and can be more suitable in a rapidly changing environment.
Step 3
Potential judgement
Answer
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Stability and Convenience: For a family-run business like Bluebells, historical budgeting provides a sense of stability and is manageable. This method helps in maintaining a clear overview of financial health while allowing for straightforward adjustments when necessary.
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Market Sensitivity Issues: While historical budgeting offers convenience, there is a risk that it may not fully account for fluctuations in the market and rising costs. As such, this approach may not capture new trends affecting profitability.