Kara's business makes wax candles. She sells them to retailers at low prices. She gives retailers 60 days to pay. Kara has to pay her suppliers when raw materials are delivered. Kara used crowd-funding to set up her business. The bank would not give Kara a loan as she did not have a business plan. Last year revenue was $50000. Demand is increasing but Kara is not yet able to benefit from economies of scale. She said: 'Cash-flow is a problem. All cash inflows are used to buy inventory.'

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

1. [2] Asking a large number of people each for a small amount of money to raise finance for a project
2. [1] Partial definition: asking general public/people to give money
3. [1] Purchasing/bulk buying
4. [1] Marketing
5. [1] Technical
6. [1] Financial
7. [1] Risk bearing
8. [1] Managerial
9. [1] Supports request for finance/shows ability to repay [k]
10. [1] increasing chance of getting finance for her candle business [app]
11. [1] Shows planning/thought seriously about issues [k]
12. [1] such as recognising that cash-flow is a problem [app]
13. [1] Provide (important) information about business [k]
14. [1] such as demand is increasing [app]
15. [1] Shows what security/assets the business has which can be used to support any loan [k]
16. [1] Level of competition/selling price of competitors [k]
17. [1] for candles [app]
18. [1] as a higher price could mean fewer customers [an]
19. [1] Cost of production [k]
20. [1] as a higher price should improve her profit margin [an]
21. [1] especially as she does not benefit from economies of scale [app]
22. [1] Price elasticity of demand [k]
23. [1] as if price elastic a higher price will result in a greater fall in demand [an]
24. [1] so revenue this year may not be $50 000 [app]
25. [1] Brand image/reputation [k]
26. [1] as higher price might suggest better quality [an]
27. [1] Delaying payment will allow them to delay cash outflow [k]
28. [1] Suppliers may be unwilling to supply materials [k]
29. [1] and without the necessary materials would not be able to generate any cash inflows [an]
30. [1] Ask customers to pay more quickly [k]
31. [1] but could result in fewer customers leading to lower cash inflows [an]
32. [1] Arrange an overdraft/short-term loan [k]
33. [1] but could be charged interest which would increase cash outflows [an]
34. [1] Sell unwanted non-current assets [k]
35. [1] which would free upcash currently tied up in the business [an]
36. [1] Buy cheaper materials [k]
37. [1] which would reduce cash outflows [an]
38. [2] As the business is small suppliers may not be willing to offer credit as they are seen as too high a risk so this may not be an option for a small business. [eval] [eval]