Business Studies GCSE AQA Unit 2 Revision

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Business Studies Unit 2: Growing as a Business
The Business Organisation
Expanding a business
Benefits of expansion:
Diversification ­ larger firms can afford to produce more profits than smaller firms. They are
able to sell into different markets, reducing the risk that a decline in sales of one product will
harm the business, less threat to profits
Financial support ­ larger firms are less likely to fail than smaller firms, they are able to
borrow money easily from banks so they will find it easier to survive flow problems. More
likely to get financial support
Personal vanity ­ owners enjoy the power and status that comes from owning a large
Domination of the market ­ the larger the market share a firm has, the more it can control the
price of its product and it has fewer threats
Economies of scale ­ larger firms can produce at a lower average cost, they pass on
economies of scale to customers, lower prices increases sales, increasing market share and
increasing profits
Summarised: Increase profit, status, reputation, market share. Reduce competition. Achieve
economies of scale. Expand into other markets
Risks of expansion:
Owner could lose control
Harder to remain close to customers
Harder and slower to make decisions for the whole business
More stakeholders to satisfy
If a firm reduces its prices by too high a margin then it could result in no increase in profit
Methods of Expansion
Organic/Internal Growth ­ growing the business from within, increasing sales by using a business's
own internal resources
Could produce more of its current products to sell into existing markets
Can sell its current products into new markets
Advantages Disadvantages
Easier to raise finance Takes a long time to achieve growth
Economies of scale Growth achieved can be dependent on overall
Inexpensive to achieve market
Job security Hard to build market share if the business is
Business grows at a sensible rate already market leader
Less risk
Increased profit
Could launch a new product which is a similar product to existing ­ line extension

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Or they could launch a completely new product ­ diversification
Inorganic/External Growth ­ expansion outside of the business
Takeover ­ when one business buys out another business
Merger ­ when two separate businesses agree to become a single business
Franchising ­ selling the right to use your businesses idea and brand name to another
business…read more

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Impact on Stakeholders
STAKEHOLDER: anyone with an interest in the business
Stakeholder Benefit Drawback
Owners Increase profit Less control
Reduce risk
Workers Greater job security Less involved
More opportunity Less personal
Increased chance of larger Less multitasking
wage/promotion More demanding
Customers Economies of scale (lower Fewer competition, higher
prices) prices
Bigger product range Powerless to influence
Suppliers Increased sales Weaker position when
Increased profit regulating prices
Opportunity to supply other More competitions want to
things supply larger firms
Bank Earn more interest Bigger risk…read more

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Limited liability Media covers
Sells shares to the mistakes
public Can't control who
Lots of shares that buys shares
are regularly Risk of losing business
invested Original owner may
Media coverage not agree with new
Public Limited Companies (PLC)
Large business that sells shares to the public
Changing Business Aims and Objectives
Corporate Objectives
About the business as a whole; usually set by the top management. Provides the focus for setting
more detailed objectives. Focuses on the desired performance and results of the business.…read more

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Business ethics: refers to whether a business decision is seen as morally right or wrong, an ethical
decision is made on the basis of what you think is right
Ethical issues consist of; animal testing, waste disposal, fair trade, child labour and pollution
To be ethical, a business could; donate to charity, pay people fairly, use fair-trade materials and use
renewable energy sources
Choosing the Best Location
Why expand overseas?
Transport costs to a minimum
Local market conditions knowledge
Avoid trade barriers by producing inside…read more

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Narrow portfolio: limited market, economies of scale, specialisation, limited customers and hard to
get repeat sales
Boston Matrix:
Market Growth:
Are the numbers of potential customers in the market
growing or not?
Market Share:
Does the product being sold have a low or high market
Introduction ­ researching, developing and then launching the product
Growth ­ when sales are increasing at their fastest rate…read more

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Maturity ­ sales are near their highest, but the rate of growth is slowing down, e.g. new
competitors in market or saturation
Decline ­ final stage of the cycle, when sales begin to fall
Extension strategies extend the life of the product before it goes into decline. Again businesses use
marketing techniques to improve sales.…read more

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Sponsorship: businesses can sometimes help to pay for events such as sport competitions, TV shows
or exhibitions arts- theatres, art galleries, concert halls, makes businesses look classy. Creates high
profile, yet if what you're sponsoring gets bad publicity your companies image suffers too
Advertising: TV, radio, internet, billboards
Channels of Distribution
1) Producer ­ retailer ­ consumer: e.g. food company sell through supermarket
2) Producer ­ wholesaler ­ retailer ­ customer e.g. book publishers selling worldwide
3) Telesales ­ selling via telephone e.g.…read more

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Profit and Loss Accounts and Balance Sheets
Profit and loss account looks at all of the things that
you have bought and sold across the year and takes
away all of the costs you had to pay during that year.
If you make more money than you have to pay out
you are in profit and if you pay-out more than you
make then you are in a loss.
Trading Account
Calculates the amount of gross profit the business
makes.…read more

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NON CURRENT ASSETS: value of assets that the business has purchased and expects to keep for
more than one year
CURRENT ASSETS: cash, cash equivalents, expected to be turned into cash during the next year
LIQUIDITY: how easy it is to turn current asset into cash
LIABILITIES: debts sum of money that is owed
CURRENT LIABILITIES: amount owed which are due to be paid within the next year
NON CURRENT LIABILITIES: long term liabilities that need to be settled in more than a years' time…read more


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