Chapter 8: Accounts: Interpreting Financial Performance
Having been made redundant by the bakery where she worked, Tracy decided to use her skills to establish a business selling freshly made fudge to local cafés and patisseries. She had initially learnt how to make fudge as a hobby and had been complimented by friends and relatives for whom she made it as a gift. To read more, download the full case study here: Chapter 08 – Case study
Chapter 8: Questions
1. How would you define the problems that Tracy is facing?
Guidance answer:
Tracy is facing a cashflow problem. Regardless of how much profit she is making, the timing of when the sales revenue comes to her compared to when she has to pay her expenses means that she does not have enough money in her bank account.
2. What can she do to address these problems?
Guidance answer:
She can either delay her payment to suppliers or make a better job of collecting money from her customers, she could for example even offer discounts for early payment.
3. Was a relatively low price the most effective approach to take? Explain the reasons for your answer.
Guidance answer:
She knew that as a start-up venture, with no employees she would be constrained in terms of how much she could make. She had, therefore, positioned her offering as an exclusive, hand-made product. The packaging and labelling would reinforce this.
She seems to have no shortage of demand at the prices that she is charging, she could therefore consider raising her prices. This could also help reduce her cashflow problems, since she would have more money with which to pay her expenses and also the possibly lower level of overall sales would mean that she would need to spend less on raw materials. Indeed she could also
Once her accounts were in better shape she could then market herself more aggressively.
