Question
Las Migas
Carolina plans to set up a bakery, Las Migas, in a small town. Competition from established bakeries is strong. Carolina has asked for a bank loan because her personal savings are insufficient. The bank manager requested the following information:
a business plan
a cash flow forecast for the first four months of operations.
Carolina has no experience with financial forecasts but she estimated the figures for Las Migas for the first four months of operations. These figures are shown in Table 1.
Table 1: Estimated figures for Las Migas for the first four months of operations
a. State two elements, other than a cash flow forecast, of a business plan.[2]
b. Prepare a cash flow forecast for Las Migas for the first four months of operations.[6]
c. Explain one problem that Las Migas may experience as a new business.[2]
▶️Answer/Explanation
Ans:
An executive summary
A business description
A market analysis
Financial forecasts
Marketing strategies
Organization strategies
Business objectives
Mission/vision statement
Human resources plan
Type of organization
Analysis, provided the candidate gives some specifics (PESTLE, SWOT, ratio, etc)
Forecasted: profit and loss and balance sheet
Accept any other relevant, meaningful element (eg product portfolio).
N.B. If a candidate states mission and vision statements, award [1]. If a candidate states either vision or mission statement, award [1]. If a candidate states forecasted profit and loss account or forecasted balance sheet, award [1]. If a candidate states both forecasted profit and loss account and forecasted balance sheet, award [1].
Do not award a mark for information such as table of contents, name and address of business, index, etc. Also, do not accept executive personnel introduction, as in this case that would be totally irrelevant.
Award [1] for stating an appropriate element of a business plan (application not required), up to a maximum of [2].
b.
All figures in $
Accept slightly different headings / format.
N.B. Allow candidate own figure rule (OFR): if a candidate makes an error in one row and carries it through the remainder of the forecast that is only one error. This provision includes both mathematical errors and conceptual errors (for example, if a candidate has the interest in the incorrect month then candidates should only lose [1] for that error.
If a candidate misclassifies an item, like salary, as an inflow, consider that one error. Award [1] if the candidate conveys some understanding of what a cash flow forecast is, but otherwise the forecast is largely inaccurate, incomplete, or illegible.
If the candidate produces a cash flow as below:
Award a maximum of [5] if otherwise fully correct. Deduct any further marks according to the guidance above for mathematical and conceptual errors.
Award [2–3] if a cash flow forecast is drawn, but either it is not in a generally accepted format or it is untidy, and/or the forecast contains three or more errors, which could include, in addition to number placement problems and mathematical errors, conceptual errors (using the word “profit” rather than “net cash flow”) or omissions, such as not having a line like “closing balance” or totals.
Award [4–5] if the cash flow forecast is drawn essentially correctly and neatly in a generally accepted format, but there is one error for [5] or two errors for [4].
Award [6] if the cash flow forecast is drawn accurately and neatly in a generally accepted format, and is error free. If the candidate provides a heading of total inflow/outflow without using another heading above of inflow or outflow – do not penalise as an omission.
If the candidate omitted both headings of outflow/inflow = one error substituting the term “net profit in the cash flow forecast for “net cash flow” is inaccurate and [1] should be deducted. If the candidate has only one row for all cash outflows, deduct [1] from the total mark awarded.
Full working is not expected.
c.Banks and suppliers are sometimes reluctant to give credit to new businesses with no trading records. The local bank may not lend Carolina the money she needs to set up the bakery, especially if the market is already very competitive. Her personal savings, as for many start-up owners, are insufficient.
Many start-up owners may lack management skills, leadership skills, etc. Carolina has no experience with financial records, account and estimates, which are vital for business survival. Carolina’s lack of managerial skills can be risky and jeopardize Las Migas’ survival.
Las Migas will have to face competition from established bakeries. In a small town, will demand be enough for another bakery? As a start-up, Las Migas will have to find a USP to survive and build its own customer base.
One problem that Las Migas could face is that the salary expected is low relative to her rent as she tries to establish her business. She might have a personal cash flow issue.
N.B. Accept cash flow problems/a need for finance, referring to the cash flow forecast constructed.
Do not accept “legal issues”, as it is a reasonable assumption that Carolina is operating within the law.
Award [1] for a relevant generic problem identified or described and [1] for any additional explanation in context.
[2] cannot be awarded for the problem if the response lacks either explanation and / or application.
For example: for identification or a description of the problem with or without application [1].
For explanation of the problem with no application [1].
For explanation of the problem and application [2].