Adele started a dance school five years ago. Every year Adele pays herself a salary and makes $1000 profit. The school offers a range of dance and exercise classes for children. It is a sole trader business. Adele believes using the right pricing method is important. Adele wants to expand the business by opening a second dance school. Based on her business plan, she forecasts that this will cost $8000. Adele cannot decide whether a bank loan is the best source of finance for this expansion.

Mark scheme

Marking points from the official mark scheme (May/June 2018). The mark or mark type is shown in brackets.

1. [1] Keeps all profits
2. [1] Unlimited liability
3. [1] Unincorporated OR no separate legal identity
4. [1] Takes all decisions OR own boss/ works for himself/herself
5. [1] Has total ownership of business OR full control
6. [1] Few legal requirements
7. [1] Executive summary
8. [1] Business aims OR targets OR vision statement OR objectives
9. [1] Marketing OR any element of mix, e.g. pricing, product, place or promotion
10. [1] Market research OR Competition OR market analysis
11. [1] Financial, e.g. cash flow forecast OR budgets
12. [1] Human resources OR number of employees OR skills needed
13. [1] Production details
14. [1] Organisational OR management details, e.g. structure, type of business, name and location of business
15. [1] Help attract customers [k] to go to her school [app]
16. [1] Help retain customers [k] in the dance classes [app]
17. [1] Maintain OR create business image [k] so that children want to attend [app]
18. [1] Remain competitive OR don't lose customers to competitors [k]
19. [1] Ensure cover costs OR survival [k] especially if she takes out a bank loan [app]
20. [1] Ensure business makes a profit [k] to pay herself a salary [app]
21. [1] Customers OR level of demand [k] for dance classes [app] to increase OR ensure revenue [an]
22. [1] Cost OR availability of suitable premises [k] as might not be able to afford location [an] as only set aside $8000 [app]
23. [1] Government regulations OR availability of grants [k] which could stop her from opening in certain locations [an]
24. [1] Competitors OR loyalty to other businesses [k] by children [app] making it difficult to compete [an]
25. [1] Access to employees [k] as will need trained people to help or advise customers [an]
26. [1] Infrastructure OR transport links OR utilities OR internet access [k] as without electricity may be difficult to operate the site [an]
27. [1] Reputation / image OR security OR crime level OR pollution in area [k]
28. [1] Close to suppliers [k] to reduce transport costs [an]
29. [1] Personal preference [k]
30. [1] Loan needs to be repaid [k]
31. [1] Have to pay interest [k] which will increase her costs [an]
32. [1] Have long time to repay [k] so has time to gain extra revenue to meet repayments [an]
33. [1] Can keep profits for future OR emergency [k]
34. [1] Has unlimited liability [k] as sole trader [app] so could lose personal assets if unable to repay [an]
35. [1] May need to offer security [k]
36. [1] Can borrow large amount or all the money [k]
37. [1] Using retained profits [k] but only has $5000 [app + an] so would still need $3000 [an]
38. [1] Using retained profits [k] as no need to repay [an]
39. [1] Using profit [k] could reduce the amount needed to borrow [an] which could reduce the amount of interest paid [an]
40. [1] Take a partner [k] but must share profits [an]
41. [1] Borrow from family and friends [k]
42. [1] Use personal savings OR sell her assets [k]
43. [1] Become a private limited company [k]