Jake's Cakes (JC) Jake started baking cakes while at university. He baked cakes for friends' birthdays and other celebrations. He posted pictures of his cakes on social media sites where they received very positive feedback and were widely shared. In 2021 Jake started JC, a small business, using his parents' kitchen. JC bakes cakes and sells them online. Jake created a website where customers design and order unique cakes. Jake uses digital promotion as the main method of promoting his products. JC has only used retained earnings to invest in marketing and new equipment. In 2023, Jake made a cake for a celebrity who shared JC's social media posts with their social media followers. As a result of this an investor approached Jake. The investor offered to provide a $25000 capital investment to help Jake grow the business. However, Jake does not want to take on an equal partner. Jake is considering a different plan for growth. His parents have agreed to let him convert their garage into his commercial kitchen. He has prepared a business plan and applied for a bank loan of $15000 to finance this growth. He has produced a cash flow forecast for the first quarter of 2024. Table 1.1: JC's cash flow forecast 2024 ($000) | | Jan | Feb | March | | :------------------ | :---- | :---- | :---- | | **Cash inflow** | | | | | Bank loan | 15 | 0 | 0 | | Cash sales | 2.5 | 2.6 | 5 | | Total inflow | 17.5 | 2.6 | 5 | | **Cash outflow** | | | | | Fixed costs | 20 | 1.5 | 1.5 | | Variable costs | 0.5 | 0.6 | 0.8 | | Total outflow | 20.5 | 2.1 | 2.3 | | Net cash flow | (3) | 0.5 | | | Opening balance | 2 | (1) | | | Closing balance | (1) | (0.5) | |

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2023). The mark or mark type is shown in brackets.

1. [1] executive summary
2. [1] business objectives
3. [1] description of the business opportunity
4. [1] marketing and sales strategy
5. [1] management team and personnel
6. [1] operations
7. [1] financial forecasts
8. [1] Accept all valid responses.
9. [1] Costs that vary with output
10. [1] Any relevant example e.g. raw materials, packaging
11. [1] Increase or decrease with the production volume / sales volume
12. Calculation: Net cash flow = Total cash in - Total cash out
13. Calculation: Opening balance = Closing balance (Feb)
14. Calculation: Closing balance = Net cash flow + Opening balance
15. [1] Value: Net cash flow (March) = 5 - (1.5 + 0.8) = 2.7 ($000)
16. [1] Value: Opening balance (March) = (0.5) ($000)
17. [1] Value: Closing balance (March) = 2.7 + (–0.5) = 2.2 ($000)
18. [3] Correct answer: 2.2
19. [1] Knowledge of a factor that may satisfy a human need e.g., Social connections / Challenge / Significance / Certainty / Maslow's hierarchy of needs.
20. [1] Application: via followers on social media / unique cakes / creating customer designed unique cakes/orders / sole business owner/sole trader/owns 100% of business / of praise from local celebrity (sharing JC social media posts) / garage conversion plan / he is an entrepreneur.
21. [1] Developed application: (two specific elements from case study linking to the need)
22. A01 Knowledge and understanding: Digital promotion: the use of advertising, sales promotion, personal selling, direct mail, trade fairs, sponsorship and public relations online
23. A01 Knowledge and understanding: Methods of digital promotion (without reference to JC) e.g. Twitter, hashtags, Facebook, YouTube
24. A01 Knowledge and understanding: Knowledge of the benefits of using digital promotion (max 2 points): wide customer reach / inform consumers and persuade them to buy / promotional objectives (increased sales/awareness; demonstrating abilities/showcasing products) / creating or reinforcing a brand image / correcting misleading reports / cheaper than non-digital promotion
25. AO2 Application: Jakes uses social media as a source of digital promotion / Use of website to enable customers to design and order cakes / Celebrity share of JC social media posts / Attracting potential investor with $25 000 capital offer
26. AO3 Analysis (Developed analysis - identifies connections between causes, impacts and/or consequences of two points): (Costs) low cost and does not require the use of external agencies who may charge a fee – reduces overheads / (Viral marketing) ease to attract the target audience – brand can grow quickly and reach new markets / (Message and image) taken and uploaded regularly without the need to use marketing agencies – increases personal interaction and brand loyalty / (Allows for feedback and direct contact) improve customer loyalty – increases chance of return custom/sales
27. A01 Knowledge and understanding: Knowledge of Bank loans (max 2 points): set amount / fixed period of time / fixed interest rate / requires good credit/reputation
28. A01 Knowledge and understanding: Knowledge of other internal and external sources of finance (max 2 points): retained earnings / owners investment / mortgage / hire purchase / overdraft / partner
29. AO2 Application: retention of 100% stake, not a 50% stake / $25 000 investment offered requires a 50% sale of JC / capital investment to rent business premises/a kitchen, employ staff and invest in promotion / current gearing ratio of 0
30. AO3 Analysis (Bank loan as an appropriate source of finance): retains full control – is able to make investment decisions in his own long term best interest / keeps all future profits for own benefit – no risk of externals hindering future expansion / liable for interest and loan repayments – may reduce cashflow which is already poor and will require an alternative short term SoF such as an overdraft or owners investment
31. AO3 Analysis (Investor as an appropriate source of finance): loss of complete ownership – may have negative implications on Jake's motivation levels / ability to control finances would be reduced (as he would have to gain agreement from the investor on any financial decisions) - investor may not want to invest capital on non-owned property / able to invest to improve marketing/employ staff – no financial repayment risk – all future profits can be reinvested or taken as dividends
32. AO3 Analysis: Any alternative source of finance compared with the business loan/suitability for JC to be accepted
33. AO4 Evaluation (Developed evaluation in context): does JC need the investment as he was able to keep up with demand, invest in his equipment and as the closing balance is positive and growing each month? / does Jake have the necessary ability to manage the risk of an external source of finance? / the most important benefits and drawbacks of a bank loan as a source of finance / weighing up the objectives and risks of choosing a bank loan / a judgement on whether a business loan is most appropriate for JC based on the evidence