Business 0450 · IGCSE · Cash-flow forecasting and working capital
Cash-flow forecasting and working capital — practice question
Gomez trades as a sole trader and offers painting and decorating services to business clients. Because the business is small, it gains no economies of scale. Gomez must pay suppliers within 1 month, but he allows customers 3 months to settle their bills. He uses an old van borrowed from his father to reach customers’ offices and shops. As the van often breaks down, Gomez is considering buying a replacement van. Table 2.1 shows a cash-flow forecast for the next 3 months.
(a)[2]
Define ‘economies of scale’.
(b)[2]
Calculate the values of X and Y.
(c)[4]
Outline two factors Gomez should take into account when selecting a source of finance for the new van.
(d)[6]
Explain one advantage and one disadvantage to Gomez of operating as a sole trader.
(e)[6]
Do you think asking customers to pay sooner is the best way for a small business to improve its cash-flow? Justify your answer.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Reasons why average costs become lower as a business grows in size” …