Fig. 1 shows the order in which the owner of a small bicycle-delivery business plans to pursue its objectives. The business has recently had late payments f...
Question 1 Report
Fig. 1 shows the order in which the owner of a small bicycle-delivery business plans to pursue its objectives. The business has recently had late payments from restaurants, so the owner has placed positive cash flow before expansion. Employees have been told that buying extra bicycles is an option only after the first two objectives have been met. Use the diagram and the information to give an answer.
(a) Define a growth objective. [2]
(b) State the two objectives that must be achieved before growth in Fig. 1. [2]
(c) State one reason why positive cash flow is important to this business. [2]
(d) Analyse one possible problem if the owner buys extra bicycles before positive cash flow is achieved. [2]
Answer Details
(a) A growth objective is a target to increase the size of a business, for example through higher sales, more outlets or more assets such as bicycles. [2]
(b) The objectives that must be achieved before growth are survival and positive cash flow. [2]
(c) Positive cash flow provides cash to pay suppliers and wages. This enables the bicycle-delivery business to continue operating and avoid missed payments. [2]
(d) Buying extra bicycles uses cash. If this happens before positive cash flow is achieved, the business may have insufficient cash for suppliers or wages, causing disruption and risking business failure. [2]
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