Refer to Appendix 2. Identify and explain four factors Fabian should consider when deciding which sources of finance to use for his new business.

Mark scheme

Marking points from the official mark scheme (May/June 2014). The mark or mark type is shown in brackets.

1. [8] Content: • amount needed (amount of savings available or redundancy payment) • how long it takes to pay it back • how quickly the finance is needed • whether it needs to be paid back (family investment/grant) • interest rate • type of business organisation • credit rating • terms and conditions of source of finance The marks available for this question are as follows: 4 marks for knowledge; 4 marks for application. 1 mark for each factor identified plus 1 explanation mark for each factor. 1 knowledge mark + 1 explanation mark (2 marks × 4 factors) Factor: Interest rate (1 knowledge mark). Explanation: Interest rate as if it is too high then Fabian might decide the source of finance is too expensive to use as the revenue from the shop to begin with will be limited (1 explanation mark).
2. [12] Content: Profit/Loss account - show if the business is covering its costs – if not then the business will not be making a return on their investment. Cash flow forecast – shows how they are managing the cash inflows and outflows of the business – this will help Fabian to manage working capital so the business doesn't become insolvent. Prediction. N.B. do not accept profit. Break-even chart – allows Fabian to know how many sales he needs in order to cover all his costs – this allows him to monitor sales to make sure he is not going to make a loss - if sales are too low then he can do something to increase them. Prediction/target. Level 1 – 1 mark for each statement. E.g. Break-even chart allows Fabian to know how many sales he needs in order to cover all his costs (1 mark). Level 2 – 5 marks for the first level 2 answer and then one extra mark for each additional level 2 answer up to maximum of 8 marks. E.g. Break-even chart allows Fabian to know how many sales he needs in order to cover all his costs. This allows him to monitor sales to make sure he is not going to make a loss (L2). If sales are too low then he can do something to increase them such as have a promotion of 'buy one flower arrangement and get a second one at a discount'. This will increase income as long as the discount is not more than the cost of buying the flowers. (L2) 6 marks for level 2 answer plus one application mark for mentioning flower arrangements. Level 3 – Detailed discussion of at least two level 2 answers and then a conclusion at the end which justifies which is the most useful compared to the other documents. Possible application marks: flowers; flower shop; partnership; hotels and restaurants; flower arrangements; trade credit; weddings/Valentine's Day/birthdays; imported supplies of flowers; There may be other examples in context which have not been included here. Knowledge/Analysis/Evaluation: Level 3: 9-10 marks - At least 2 x Level 2 + Well justified conclusion as to the most useful document compared to the others. Level 2: 5-8 marks - Good discussion of each financial document. Judgement shown as to why each financial document is important to the running of the business. Level 1: 1-4 marks - Definition. Outline of each financial document.