Ola sells building materials. She owns 45 shops and a regional distribution centre (RDC). Her shops are covered by public liability insurance, and she receives 90 days' trade credit from her main supplier.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2025). The mark or mark type is shown in brackets.

1. [1] A warehouse/centre/point used by a retailer to supply its shops/branches/outlets / stores stock for the shops in the region / Used by large-scale retailers to store goods.
2. [1] Public liability insurance protects the business from any accidents/injuries that happen to customers/third parties / while customers are on the property
3. [1] e.g. a member of the public falling on a slippery shop floor and breaking their leg
4. [1] Protects against claims / compensation / covers costs
5. [1] due to negligence by Ola's business
6. [1] Lowers the risk / of being sued
7. [1] of paying compensation
8. [1] Public liability insurance covers the cost of any legal action
9. [1] without it, it could be very expensive / could lead to closure of some of her shops
10. [1] Gives peace of mind to Ola
11. [1] knowing that her business is protected from loss
12. [1] Gives business confidence/trust
13. [1] as Ola's business seen as responsible
14. [1] Improves cash flow
15. [1] as payment is delayed/spread out for 90 days/frees up funds
16. [1] Can be used as opportunity cost of using it for other purposes/other parts of her business
17. [1] example, such as renovation
18. [1] Allows Ola to look for potential buyers /sell goods
19. [1] and earn revenue to pay the supplier
20. [1] Can be used to buy more stock
21. [1] if there is increased demand / without strain of paying upfront / to help with day-to-day running of her business
22. [3] Yes - rail is suitable for heavy goods (1) bulk loads (1) rail has large carrying capacity (1) Ola might need a fleet of trucks to carry vast amounts of raw materials (1) which could be very expensive (1) road is expensive over long distances / rail cost-effective over long distances (1) rail is suitable for long distances (1) road is slow over long distances (1) no delays caused by traffic jams (1) so can be delivered on time (1) whereas rail is more environmentally friendly (1) as no air pollution (1) because they reduce car use (1) not affected by bad weather (1)
23. [3] No – road has flexible / various routes (1) not restricted to any timetable/flexible timetables(1) quick over short distances (1) cheaper over short distances (1) Ola can deliver directly to the door of the regional distribution centre (1) without any transshipment (1) saving time/cost (1) making it more efficient (1) less costly/cheaper than rail (1) trucks are large enough to carry raw materials in bulk (1) can advertise on the side of the vehicles (1) e.g. website (1) so that people can order more materials (1) less handling / loading/unloading (1) making goods sent by road less likely to be damaged / stolen (1)
24. [8] Level 3 (7-8 marks): The candidate is able to offer a thorough evaluation, with recommendation, of whether Ola should become a private limited company or offer franchises to fund expansion.
25. [8] Level 2 (5-6 marks): Candidate offers a satisfactory analysis of the advantages and/or disadvantages of becoming a private limited company or offer franchises to fund expansion, without a recommendation
26. [8] Level 1 (1-4 marks): Candidate demonstrates some knowledge and understanding, with application to Ola of becoming a private limited company or offering franchises to fund expansion.
27. [0] Level 0 (0 marks): No creditable response
28. A private limited company is in the private sector, is a legal entity separate from its owners, with limited liability meaning the owners' personal assets are protected if the company faces debt. These companies are owned by shareholders usually run by a family.
29. A franchise is a way of running a business by marketing it by offering franchises to franchisees who buy the rights to use the business name, products and marketing of the franchisor. The owner of an established brand is the franchisor who grants the franchisee the right to use the brand's name/trademarks to sell their goods or services. This arrangement is governed by a legal document called a franchise agreement. The franchisee pays the franchisor an initial upfront fee to acquire the rights and a percentage of ongoing sales revenue/royalties for continued use of the brand and support services which can include training.
30. Arguments for and against becoming a private limited company: It is easier to raise capital. Forming a private limited company means that the business can have shareholders as investors to raise the capital needed. The business will have limited liability so there is a likelihood of attracting sufficient shareholders to invest/more investors. Ola will have other people to share control of the business that could help in decision-making. However, becoming a private limited company is costly as there are legal procedures needed to set up a company which makes it expensive. Some of the funds raised may be needed to pay setting up company costs thereby reducing its expansion plans. Ola might find it difficult to find people willing to invest in the business even though they have legal protection and this could impact on its expansion plans. Ola cannot sell shares to the public to raise capital thereby limiting amount invested/small capital. Financial situation is not private as accounts are publicly available. In some countries, the number of shareholders is restricted to 50 so this reduces expansion. There will be more restrictions on what the business can do as it is controlled by memorandum/articles of association.
31. Arguments for and against offering franchise opportunities: For each franchise that is opened Ola will receive a fee, so every time a franchise opens Ola can use the fees to expand by opening more shops herself. Franchising the business can be a cost-effective way to grow her business as she will not have to cover the cost of investing in new premises or staff. Additional sales lead to additional profit and in the long-term, she should have a saleable asset for her future. Easier management as the franchisees run their businesses therefore reducing the management demands placed on Ola. Franchises develop the brand so the more franchisees the better known the brand becomes. A larger business is more secure and additional turnover and profit can provide access to better deals for equipment, vehicles and other business purchases. There are many costs involved to get a successful franchise model in place for future growth of the business including investment in preparing legal documents, operations manuals, marketing materials and recruitment. Franchising will take a lot of time and investment especially when initially setting up the franchise model as Ola will have to take the time to ensure she attracts the right franchisees and control what they do. She will have to develop training and support for the franchisees to successfully sell her brand which will make setting up more expensive and time-consuming.
32. Evaluation: Overall, I recommend that Ola converts to a private limited company. As she has 45 shops, this would suggest to potential investors that the business has growth prospects to invest in. The costs and time setting up the franchise model may be too expensive for Ola and it may take too long to expand. Also, the more franchises Ola sets up the greater the workload to manage and monitor what they do.