First Nature (FN) FN is a co-operative farm producing milk, beef and vegetables. Products are sold in its shop and at local farmers' markets. FN's mission statement is in Fig. 1.1. Fig. 1.1: FN's mission statement The sustainable production of food, to build strong relationships with members and customers and to contribute to the local community The co-operative has 20 members who work on the farm, in the shop and at the markets. Over the past 10 years FN has built up a loyal customer base. Recently, a neighbouring farm has become available to purchase for $80000. FN has limited capital but would like to expand by purchasing the neighbouring farm. FN is considering sources of finance for the capital needed to buy the land. Giuseppe is one of the original members of the co-operative and has accounting skills. He has prepared the cash flow forecast shown in Table 1.1 in the business plan for the neighbouring farm. Table 1.1: Cash flow forecast for the neighbouring farm Quarter 1 ($000) Quarter 2 (000) Quarter 3 (000) Quarter 4 ($000) Cash Inflows Revenue 0 0 40 200 Total cash in 0 0 40 200 Cash Outflows Set-up costs 80 0 0 0 Equipment 20 10 0 10 Training 30 0 0 0 Total cash out 130 10 0 10 Opening balance 0 (130) (140) (100) Closing balance (130) (140) (100) X FN will use the neighbouring farm to develop educational programmes for local schools and for putting on community events. The 20 members of the co-operative already work very long hours. The members are discussing whether they should allow more members or become a public limited company (plc) and employ the extra workers required. To become a public limited company would require the agreement of all 20 members. Some members are in favour of the change to a public limited company as they would become quite wealthy through selling shares. However, other members feel that it would change the relationship with its customers.

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. [2] (a)(i) A correct definition
2. [1] (a)(i) A partial, vague or unfocused definition
3. (a)(i) Note: Do not allow objectives or confusion with a business's objectives
4. (a)(i) Answers could include: A written summary of an organisations main purpose / focus. Usually doesn't change over time. Shows what is important to the organisation, communicates sense of intended direction to external and internal stakeholders. May give examples.
5. (a)(i) A correct definition should include two aspects of a mission statement, for example two of the of the following: Vision / beliefs, Purpose, Goals, Values, Focus, Marketing / communication – attract customers, (Core) aim, Motivational, Long term, Sense of direction, Creates interest by external groups, Communicates to stakeholders, It is not an objective
6. [1] (a)(ii) Award one mark for each point of explanation: Owned / financed by workers / customers / members
7. [1] (a)(ii) Award one mark for each point of explanation: Profits are shared
8. [1] (a)(ii) Award one mark for each point of explanation: Responsibilities are shared
9. [1] (a)(ii) Award one mark for each point of explanation: Owners may contribute to the running of the business
10. [1] (a)(ii) Award one mark for each point of explanation: Shared decision making
11. [1] (a)(ii) Award one mark for each point of explanation: All members have one vote
12. [1] (a)(ii) Award one mark for each point of explanation: Example or some other way of showing good understanding, e.g. bulk buying, common in agriculture, motivational, slow decision making, allows the achievement of economies of scale etc.
13. (a)(ii) Note: using the case as an example is repetition and not rewardable as the C mark
14. (a)(ii) A co-operative is a business structure where the workers are the owners. The profits are shared with workers. Workers (owner) do not have to run the business, they will vote for Directors. In smaller co-operatives such as co-worker operatives then workers may also run the business.
15. [2] (b)(i) Correct answer with or without correct working or $ or 000s
16. [1] (b)(i) Correct formula* or the correct identification of figures
17. (b)(i) *Correct formula can be implied through the use of figures
18. (b)(i) Formula: Opening balance + cash in – cash out
19. (b)(i) -$100 000 + $200 000 – $10 000 = $90 000 (accept 90)
20. [4] (b)(ii) Explanation of two benefits of cash flow forecasting in context
21. [3] (b)(ii) Explanation of one benefit of a cash flow forecasting in context
22. [2] (b)(ii) Identifies two benefits of cash flow forecasting
23. [1] (b)(ii) Identifies one benefit of cash flow forecasting
24. (b)(ii) Note: an answer which explains ONE benefit in context (i.e. APP annotation) gains 3 marks.
25. (b)(ii) Content is likely to come from: Identifies potential cash shortfalls – If a business runs out of cash and is able to obtain new finance, it will become insolvent. To measure the financial performance of the business. Makes sure the business can pay debts / bills. Identifies potential problems with customer payments. Allows better management of a business's finances. To give information to other stakeholders, e.g. banks. Identify potential shortfalls in cash balances in advance - 'early warning system'.
26. (b)(ii) Note: cash flow forecasting does not allow a business to forecast profit / loss
27. (b)(ii) Context may come from: Expansion, Use of numbers from Table 1.1, Purchase of neighboring farm, Answer to 1(b)(i)
28. [4] (c) Shows understanding of two sources of finance in context
29. [4] (c) Developed analysis two sources of finance in context
30. [3] (c) Shows understanding of one source of finance in context
31. [3] (c) Developed analysis one source of finance in context
32. [2] (c) Shows knowledge of two sources of finance
33. [2] (c) Limited analysis of two (or more) sources of finance
34. [1] (c) Shows knowledge of one source of finance
35. [1] (c) Limited analysis of one source of finance
36. (c) Note: do not reward the sale of share OR the change of legal structure to a PLC (unless it is totally unrelated to share issue)
37. (c) Content: Internal sources of finance: Retained earnings, Sale of unwanted assets, Sale and leaseback of non-current assets, Working capital
38. (c) Content: External sources of finance: New partners, Venture capital, Overdrafts, Leasing, Hire purchase, Bank loans, Mortgages, Debentures, Micro-finance, Crowd funding, Government grants
39. (c) Contextual analysis likely to come from: Amount to raise is $80 000 (or $140000 based on negative cashflow), One option discussed to invite more members of the co-op, Bank loan - cash flow predicts a healthy surplus in just over a year, Internal finance may not be suitable as FN has limited capital / poor cashflow, Being a co-operative
40. [7] (d) Justified evaluation based on arguments in context
41. [6] (d) Developed evaluation based on arguments in context
42. [5] (d) An evaluative statement based on arguments in context
43. [3-4] (d) Shows understanding of changing from a cooperative to a public limited company in context
44. [4] (d) Argument based on two impacts of FN changing from a co-operative to a public limited company on the local community
45. [3] (d) Argument based on one impact of FN changing from a co-operative to a public limited company on the local community
46. [1-2] (d) Shows knowledge of changing from a co-operative to a public limited company
47. [2] (d) Limited analysis of two impacts of a change in legal structure a local community
48. [1] (d) Limited analysis of one impact of a change in legal structure on a local community
49. (d) Note: local community could include customers, neighbouring farms, suppliers. Internal stakeholders are not local community, such as investors and members.
50. (d) Context / content: Customer focused business - will it alienate their customer base. Will prices rise as shareholders would want high profit / dividends. Culture of a PLC very different to a co-operative. Will it affect working relationships. Not all members agree so already causing conflict. Could provide finance for the expansion and no interest to pay. Provide income for members. Would have to appoint Board of Directors – members might all want to be on the board. Currently all have equal rights – this could change. Will it change mission statement especially in relation to local community? Will it change plans for use of additional land from education and events for the local community? Will it still commit to sustainable farming? Neighbouring farms may fear possible takeover.