Riverbend Coffee is a small business with one coffee shop near a railway station. Its sales have risen because more commuters buy breakfast drinks. The owne...
Question 1 Report
Riverbend Coffee is a small business with one coffee shop near a railway station. Its sales have risen because more commuters buy breakfast drinks. The owner is considering opening a second outlet in a nearby office district. She wants to expand without reducing the quality of customer service at the original shop.
(a) Identify one way in which opening a second outlet could increase Riverbend Coffee's sales. [1]
(b) Explain one possible disadvantage of this method of expansion for the business. [2]
(c) Which source of finance would be most suitable if the owner needs a small amount of money quickly: retained profit, issuing shares or a long-term bank loan? [1]
Answer Details
(a) Opening a second outlet lets more customers buy Riverbend Coffee because it reaches office workers in another location. [1]
(b) The new outlet will have start-up costs, such as rent or equipment. [1] If sales are lower than expected, profit or cash flow may fall and the original business could be put at risk. [1]
(c) Retained profit is the most suitable source if the owner needs a small amount of money quickly. [1] It is profit already kept in the business, so it can be used without the delay of issuing shares or arranging a long-term loan.
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