As business unit 3 - 20th may 2013 aqa

(SOurce; from teacher's booklet)

(a) Cash flow
Sales - Jem could increase his sales - reducing prices-Disadvantage: less money earnt.
Winter period - During the winter period jem could make other products such as baskets made from thatch.
Increase deposit - jem could increase deposit paid by customers from 10% currently to 25-50% this means he has more working capital, this enables him to have money when he needs it.
Six months - it states that the deposit takes six months to be paid by the customers. He will have to decrease that to make sure credit in the business is controlled.....

He's written more points in more detail but i need to revise for my maths exam tomorrow so i might post the rest later....hope that helped a little.

hi, im new to the student room, my business teacher provided us with an acronym which basically broke down the pre release material into smaller sections:


RESEARCH TASK (a)
Research the possible actions that Jem might take to improve the cash position of MT Ltd.
Possible exam question:
Drawing on your pre-examination research, discuss the possible actions that Jem might take to improve the cash position of MT Ltd. (10 marks)
Actions may include:
· Taking longer trade credit from suppliers. At present suppliers expect payment within 21 days of delivering the reeds and straw. With Jem not being paid until after the roof is finished this causes serious problems as cash is going out well in advance of cash coming in. By asking suppliers for perhaps 60 or 90 days it may be possible to delay cash outflows until more customer deposits are taken which can help bring more cash into the business
· Taking a larger deposit from customers. By only taking a 10% deposit on a room priced at around £20 000 this means Jem has only £2000 in cash in order to pay for wages, stocks of straw etc. If he took a deposit of around 40% it would enable him to bring more cash into the business enabling these costs to be met without serious cash flow problems.
· Taking payment from customers in instalments. Builders typically take payments in stages rather than all at the end in order to be able to pay out wages and other costs of materials. Jem could arrange to take half the payment when half the roof is completed (i.e. One side) and then the other half when the roof is finished. This ensures that he isn’t waiting for 90% of the value of the invoice at the completion date which could be 6 months after the thatching work starts.
· Giving customers 30 days to pay the final balance. Since it can be several months before the roof is thatched it makes no sense for Jem to then allow customers another 60 days to pay the invoice. This simply delays cash inflow longer. He needs to be strict and ask for the balance to be paid after just 30 days which will bring the cash in sooner.
· Chasing up slow payers. Jem needs to follow up customers who have not paid on time as they can take up to 60 days to pay the final balance. He should visit them in person if possible and ask for payment, explaining that he has had to pay out for the materials and wages. The face to face contact can pressurise customers into writing a cheque then and there allowing Jem to bank some cash before his overdraft limit is exceeded. If his invoices tell customers they have 30 days in which to pay they should have no excuse.
· Taking a short term loan or overdraft. In the quiet winter months when the weather makes it difficult to work on thatched roofs Jem will find it difficult to draw wages from the business and may still have to pay his apprentices if they are on an annual contract rather than seasonal. As a result it would be worthwhile taking a loan to survive the quieter months until the busier sales period during the summer season when they can work longer hours in better weather bringing in more sales and cash.
· Complete one roof at a time. Since payments are only completed after a roof is finished there is no point in working on several roofs at a time as this leads to more cash outflows on more materials and still the customers will not be paying as they only pay the 90% of the cost once the work has been finished. By completing one house Jem will receive payment from this which he can use towards materials and wage costs on the next project. This helps to balance the cash flow by receiving cash before paying out for too many outgoings.
· Diversify into a new activity. Thatching is weather dependent and Jem cannot simply work inside as a builder could when rain limits the hours he can work. If Jem can find an activity he can do indoors in order to bring in revenue during winter and when conditions prevent him from thatching he will have much more chance of bringing in cash all year round. This could be something as simple as doing occasional work for Ikea putting together flat pack furniture for homeowners though this will depend upon Jem’s interests and ability.

Conclusion

Candidates may conclude that the best action would be to both take a larger deposit and get customers to pay in instalments as a £20,000 job is far too much to fund himself – especially if he is doing several jobs at once and not getting paid from any until the final job is completed. A 40% deposit could be arranged with a further instalment once the first half of the roof is completed (for example another 30% paid then with the final 30% at the end ) to bring cash in much sooner. The problem with delaying payments to suppliers is that they may disagree with this and the straw is already in short supply so he cannot afford to lose a supplier.

I'm struggling on this too!

Maybe things like:

how would you go about saying if it will be a profitable investment or not? im severally panicking and my business knowledge has just left my head because im stressing soo much thank you for the help! best of luck tomorrow!!
I got A&B in my coursework pieces how about you?

hi, im new to the student room, my business teacher provided us with an acronym which basically broke down the pre release material into smaller sections:


RESEARCH TASK (a)
Research the possible actions that Jem might take to improve the cash position of MT Ltd.
Possible exam question:
Drawing on your pre-examination research, discuss the possible actions that Jem might take to improve the cash position of MT Ltd. (10 marks)
Actions may include:
· Taking longer trade credit from suppliers. At present suppliers expect payment within 21 days of delivering the reeds and straw. With Jem not being paid until after the roof is finished this causes serious problems as cash is going out well in advance of cash coming in. By asking suppliers for perhaps 60 or 90 days it may be possible to delay cash outflows until more customer deposits are taken which can help bring more cash into the business
· Taking a larger deposit from customers. By only taking a 10% deposit on a room priced at around £20 000 this means Jem has only £2000 in cash in order to pay for wages, stocks of straw etc. If he took a deposit of around 40% it would enable him to bring more cash into the business enabling these costs to be met without serious cash flow problems.
· Taking payment from customers in instalments. Builders typically take payments in stages rather than all at the end in order to be able to pay out wages and other costs of materials. Jem could arrange to take half the payment when half the roof is completed (i.e. One side) and then the other half when the roof is finished. This ensures that he isn’t waiting for 90% of the value of the invoice at the completion date which could be 6 months after the thatching work starts.
· Giving customers 30 days to pay the final balance. Since it can be several months before the roof is thatched it makes no sense for Jem to then allow customers another 60 days to pay the invoice. This simply delays cash inflow longer. He needs to be strict and ask for the balance to be paid after just 30 days which will bring the cash in sooner.
· Chasing up slow payers. Jem needs to follow up customers who have not paid on time as they can take up to 60 days to pay the final balance. He should visit them in person if possible and ask for payment, explaining that he has had to pay out for the materials and wages. The face to face contact can pressurise customers into writing a cheque then and there allowing Jem to bank some cash before his overdraft limit is exceeded. If his invoices tell customers they have 30 days in which to pay they should have no excuse.
· Taking a short term loan or overdraft. In the quiet winter months when the weather makes it difficult to work on thatched roofs Jem will find it difficult to draw wages from the business and may still have to pay his apprentices if they are on an annual contract rather than seasonal. As a result it would be worthwhile taking a loan to survive the quieter months until the busier sales period during the summer season when they can work longer hours in better weather bringing in more sales and cash.
· Complete one roof at a time. Since payments are only completed after a roof is finished there is no point in working on several roofs at a time as this leads to more cash outflows on more materials and still the customers will not be paying as they only pay the 90% of the cost once the work has been finished. By completing one house Jem will receive payment from this which he can use towards materials and wage costs on the next project. This helps to balance the cash flow by receiving cash before paying out for too many outgoings.
· Diversify into a new activity. Thatching is weather dependent and Jem cannot simply work inside as a builder could when rain limits the hours he can work. If Jem can find an activity he can do indoors in order to bring in revenue during winter and when conditions prevent him from thatching he will have much more chance of bringing in cash all year round. This could be something as simple as doing occasional work for Ikea putting together flat pack furniture for homeowners though this will depend upon Jem’s interests and ability.

Conclusion

Candidates may conclude that the best action would be to both take a larger deposit and get customers to pay in instalments as a £20,000 job is far too much to fund himself – especially if he is doing several jobs at once and not getting paid from any until the final job is completed. A 40% deposit could be arranged with a further instalment once the first half of the roof is completed (for example another 30% paid then with the final 30% at the end ) to bring cash in much sooner. The problem with delaying payments to suppliers is that they may disagree with this and the straw is already in short supply so he cannot afford to lose a supplier.

I am stuck on this question as well, so any help would helpful

for question task (b)

When it says what points would an entronprenuer consider, we know straight away the question will be are you for and against Jem investing his 20 acres

Its 16 mark - you get 2 marks for 1 point and 1 explination

FOR -----
- I am for Jem expanding his business as Jem is a master thacter - good experience
- Jem made a profit of 17k last year, shows the business is profitable
- Jem will have all his produce grown - cheaper - guaranteed supply
- The industry of thached rooms is growing
- the company is a LTD which means it's protected by limited liability

AGAINST ------
- Only had a small profit last year
- The job is seasonal so won't require constant produce
- Jem has no farming experience
- 20 acres is alot to invest in, he may require a bank loan (will have to pay back WITH intrest)
- Low economy atm

Conclusion -----
You don't get graded on if your right saying yes or no, you can say any one, and just use points what u gave, so im for jem expanding as his business is profitable however peeps may disagree because the ecnonmy is low atm


HOPE THIS HELPED AND GOODLUCK TOMORROW!