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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. (10)
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 historical budgeting is valuable
Answer
Historical budgeting allows Les and Liz to draw upon 16 years of financial data since they opened Bluebells in 2006. This experience offers insights into market trends, peak seasons, and customer behavior, leading to more accurate financial projections. These figures can help identify patterns, enabling them to make informed decisions regarding pricing strategies, marketing, and resource allocation. Furthermore, since Bluebells is a small business, using historical budgeting simplifies the process, making it easier and quicker for their financial planning.
Step 2
Considerations against historical budgeting
Answer
While historical budgeting is beneficial, it is important to recognize that the holiday accommodation market in Keswick is competitive. Many alternatives exist for tourists, and factors such as changing consumer preferences and external economic conditions could significantly alter demand. Furthermore, the variable costs per room may fluctuate; for example, the current variable cost is £34, which could increase. This unpredictability may affect the accuracy of their historical budget if they do not account for potential changes in the market.
Step 3
Potential judgment on the necessity of historical budgeting
Answer
For a small family-run business like Bluebells, historical budgeting remains valuable due to its convenience and straightforward nature. However, Les and Liz should be cautious and remain adaptable to changes in their environment. They may also consider integrating more flexible budgeting approaches alongside historical data to account for potential market shifts, ensuring that they can respond to future uncertainties effectively.