Identify and explain two disadvantages to Manuel of operating as a sole trader.

Mark scheme

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

1. Content:
2. • Lack of capital
3. • No one else to help make decisions
4. • Unlimited liability
5. • No continuity
6. • May have limited range of skills
7. • Long working hours / difficult to take holidays
8. The marks available for this question are as follows: 2 marks for knowledge; 2 marks for application and 4 marks for explanation/analysis.
9. 1 mark for each disadvantage (2 marks maximum). Up to two further marks are available for explaining the disadvantage. 2 application marks are also available.
10. Possible application marks: shop; fruit and vegetables; been in business for 10 years; one month credit given to regular customers; 5 employees / part time.
11. There may be other examples in context which have not been included here.
12. 1 knowledge mark + up to 2 explanation marks + 1 application mark for each disadvantage (4 marks x 2 disadvantages)
13. Disadvantage: He will have unlimited liability (1 mark for knowledge)
14. Developed explanation: He will have unlimited liability (1) which means that if the shop goes bankrupt he could lose all his personal possessions, (2) which means he could lose not just the money he put into the shop but all the other debts of the shop would have to be paid by Manuel. (3)
15. Application: The application mark could be achieved as the answer makes reference to the shop (1 application mark).
16. Content (for part b):
17. • Reduce wages
18. • Buy cheaper stocks of fruit and vegetables
19. • Raise price of products
20. • Sell more fruit and vegetables
21. • Reduce fixed costs
22. • Overdraft facility
23. • Loan (Bank or family and friends)
24. • Delay paying suppliers / improved terms
25. • Reduce credit terms for customers
26. • Increased advertising
27. • Reduce wastage
28. Level 1 – 1 mark for each statement, e.g. Manuel needs to raise his prices (1 mark).
29. 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. Manuel needs to raise his prices as this may increase his shop revenue and improve his financial position. However, there is a danger that if he increases his prices he will be less competitive with other fruit and vegetable shops and may lose customers to the competitors' shops. Hence his cash flow would not improve. 5 marks for level 2 answer plus one application mark for mentioning fruit and vegetable shops.
30. Level 3 - Detailed discussion of at least two level 2 answers and then a recommendation at the end which justifies which is the best way to choose compared to the other ways.
31. Possible application marks: shop; fruit and vegetables; been in business for 10 years; reference to delivery costs; one month credit given to regular customers; finance figures from App 1; 5 employees down to 4; 100% mark-up.
32. There may be other examples in context which have not been included here.
33. Application (Level 3): 9-10 marks At least 2 x Level 2 + well justified recommendation as to the best way to choose compared to the other ways.
34. Application (Level 2): 5-8 marks Good discussion of advantages/disadvantages of each way to improve the cash flow OR balanced argument. Some limited judgement shown in recommendation about the best way to choose.
35. Application (Level 1): 1-4 marks Outline of advantages/disadvantages of each way to improve the cash flow.