Aurelie is a sole trader. She started her small hotel 1 year ago using government support. Aurelie knew it would be important to build good customer relationships. Aurelie wants to analyse her financial statements using ratio analysis. An extract is shown in Table 3.1. She is worried about how the Government's plan to introduce a new tourist tax of 1 per tourist per night might affect her business. Table 3.1 Extract of Aurelie's Income statement for 2020 () Revenue 5600 Cost of sales 1800 Gross profit X Expenses 2400 Profit Y

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2021). The mark or mark type is shown in brackets.

1. [1] Offer grants
2. [1] Loans for small businesses
3. [1] Low tax rates / tax relief / tax breaks
4. [1] Offer advice / support / information / mentors
5. [1] Provide (free / low-cost) training
6. [1] Low cost / rent-free premises
7. [1] Organise business fairs
8. [1] X $3800 or 3800
9. [1] Y $1400 or 1400
10. [1] Profit margin
11. [1] Gross profit margin
12. [1] Return on capital employed / ROCE
13. [1] Current (ratio)
14. [1] Acid test (ratio)
15. [1] Increase price [k]
16. [1] at her hotel [app]
17. [1] leading to lower demand [an]
18. [1] Lower demand/sales [k]
19. [1] leading to less revenue [an]
20. [1] than $5600 [app]
21. [1] Increase administration costs [k]
22. [1] for this sole trader [app]
23. [1] reduce her profit margin [an]
24. [1] May have to lower prices [k]
25. [1] Makes customers feel valued / builds trust [k]
26. [1] so improves customer loyalty [an]
27. [1] which can help maintain / increase revenue [an]
28. [1] Can help build reputation / brand image [k]
29. [1] May need to train/recruit employees [k]
30. [1] which increases costs [an]
31. [1] Loyalty (reward) scheme [k]
32. [1] which can encourage customers to keep returning [an]
33. [1] but there is time / cost of setting up / monitoring scheme [an]
34. [1] Market research [k]
35. [1] Maintain good communications [k]
36. [1] Respond to complaints / offer refunds quickly [k]
37. [2] Good customer service can make customers feel valued [k] so customers may be willing to buy additional products [an]. However, it may mean the business has to train its employees [k] which increases costs [an]. But I think it is still the best way as it can also help attract additional customers to the business increasing revenue [eval] which can offset / cover the additional cost of training. [eval].