Syllabus: AQA - AS and A Level Business
Module: 3.5 Financial Management
Lesson: 3.5.4 Making Financial Decisions: Improving Cash Flow and Profits

Introduction

Unit 3.5.4 of the AQA A-level Business specification focuses on a core aspect of financial management: improving cash flow and profits. This topic is central not only to examination success but to students’ commercial literacy — helping them understand how financial decisions affect real-world organisations.

Mapped directly to the AQA specification, this unit builds financial fluency while enabling students to make informed, strategic decisions. It’s also a key pillar of workplace readiness and commercial awareness, two of the core themes embedded in the Skills Hub Business and Futures platforms.

Key Concepts

According to the AQA specification, this unit includes:

• Methods for improving cash flow, such as:

  • Better credit control

  • Shortening receivables periods

  • Delaying payables without harming relationships

  • Managing stock efficiently

• Ways to improve profitability, including:

  • Increasing prices or sales volume

  • Reducing variable or fixed costs

  • Improving operational efficiency

• Assessment of improvement strategies, requiring:

  • Evaluation of quantitative and qualitative factors

  • Consideration of stakeholder impact

  • Use of relevant financial ratios (e.g., gross and net profit margins)

• Challenges in implementation, such as:

  • Risk to customer relationships

  • Reputational effects of cost-cutting

  • Trade-offs between short-term cash flow and long-term growth

Students must interpret financial data and make balanced, evidence-based recommendations.

Real-World Relevance

Cash flow issues are among the leading causes of business failure in the UK. Recent examples that resonate with students include:

• Wilko’s collapse (2023): Poor cash flow management and high overheads made it vulnerable despite strong brand recognition.

• Deliveroo’s pivot to profitability: The company reviewed its cost structures and diversified revenue streams to improve operating margins post-pandemic.

These case studies can prompt classroom debates on the fine line between necessary financial decisions and the human impact of those choices (e.g., layoffs, price increases, supplier renegotiations).

Using Skills Hub Business tools, students can simulate financial trade-offs — such as choosing between tightening payment terms or renegotiating supplier contracts — reinforcing their decision-making under pressure.

How It’s Assessed

In AQA A-level Business exams, this topic is assessed through a mix of:

• Short-answer data response questions (e.g., calculate the change in profit margin)

• Case study-based application (e.g., recommend strategies based on cash flow forecasts)

• 20-mark evaluative essays requiring balanced judgement, such as:

  “To what extent should the business prioritise improving cash flow over profitability?”

Command words to look out for:

• “Analyse” – break down financial outcomes using calculations

• “Evaluate” – weigh different methods and justify preferred strategies

• “Recommend” – apply judgement to a given scenario with financial evidence

Teaching tip: Students often confuse cash flow with profit. Regular low-stakes quizzes and scenario-based discussions can help clarify the distinction.

Enterprise Skills Integration

This unit is an excellent opportunity to build several key enterprise skills:

• Decision-Making & Problem-Solving: Students must use limited financial data to justify a preferred strategy.

• Strategic Thinking: Balancing short-term liquidity with long-term growth reflects real business tension.

• Commercial Awareness: Understanding how operational decisions ripple through to cash flow and profitability is vital for any role, not just finance.

In simulations or role-play, students can take on the CFO role and present to stakeholders, practising both financial reasoning and professional communication.

Careers Links

This topic aligns directly with Gatsby Benchmarks 4, 5 and 6:

• Benchmark 4 – Linking curriculum to careers: students explore how financial concepts impact roles like Finance Manager, Operations Director, or SME Owner.

• Benchmark 5 – Employer encounters: guest speakers from finance or operations roles can discuss real cash flow pressures.

• Benchmark 6 – Workplace experiences: enterprise simulations (such as those in Skills Hub Futures) let students manage fictional company finances in real-time.

Relevant career paths include:

• Chartered Accountant

• Financial Analyst

• Commercial Manager

• Business Consultant

• Operations Manager

Bringing these careers into lessons helps students see the relevance of financial literacy beyond the classroom.

Teaching Notes

Teaching Tips

• Use fictional case studies (e.g., a bakery with seasonal cash flow issues) to let students practise identifying solutions.

• Introduce financial forecasting tools such as simplified cash flow templates or budget planners.

• Run debates: “Should a business ever delay supplier payments to protect its cash flow?”

Common Misconceptions

• Confusing profit with cash flow

• Believing all profit-increasing strategies are equally beneficial

• Underestimating stakeholder impact of financial decisions

Extension Activities

• Analyse a real company’s published financials (e.g. Tesco’s annual report) to identify cash flow strategies.

• Use Enterprise Skills’ Break-even Calculator and Decision-Making Scenarios tools for applied learning.

• Create a simulation where students act as financial consultants solving a client’s liquidity crisis.

Assessment Insight

• Encourage clarity in evaluation: students often lose marks by failing to weigh up both positives and negatives of a decision.

• Model how to use structure in long-answer questions (Point, Explain, Evidence, Evaluate).