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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 Options for Cash Flow Improvement
Answer
To manage cash flow effectively, it is essential for Bluebells to generate sufficient income during the peak months of May to September. Cash flow refers to the movement of cash into and out of the business, which is critical for day-to-day operations. Since Bluebells is a seasonal business, focusing on improving cash flow can provide the necessary flexibility during the off-peak months.
Key strategies could include better financial planning and forecasting, ensuring that enough cash reserves are available. Les and Liz already recognize the importance of managing working capital. Improving cash flow will also reduce reliance on bank loans, which can be financially burdensome. Additionally, maintaining a positive cash flow ensures that the business can cover its fixed costs without running into debt.
Step 2
Evaluate Options for Increasing Profit
Answer
Increasing profit is a longer-term strategy that can help Bluebells reinvest in the business to maintain efficiency and quality. Les and Liz could consider enhancing marketing efforts to boost occupancy rates, thus increasing revenue per available room.
While cash flow focuses on immediate financial health, profit generation is essential for sustainability. A greater focus on profitability would allow Bluebells to reinvest profits into business enhancements, such as renovations or improved services.
However, in a competitive market, sustained profit growth requires continuous adaptation and may necessitate initial investments that impact short-term cash flow.
Step 3
Recommendation
Answer
In conclusion, while both cash flow and profit are significant for Bluebells, the immediate focus should be on improving cash flow. Enhancing cash flow will provide the necessary foundation to maintain operations during the off-peak season and cover fixed costs. Once a stable cash flow is established, Liz and Les can then shift their focus toward strategies for increasing profit, ensuring long-term viability and success in a competitive market.