Business S1 - Starting a business

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Why Businesses Exist

Set up for various reasons - 

Business = organisation that provides goods or services to customers. Reasons to start a business - 

  • Financial - making profits.
  • Personal - independence.
  • Help others - charity.

Different aims - 

Most important for most is to make profit to survive. Examples also include - 

  • Be the biggest in the market.
  • Provide highest quality.
  • Expanding.
  • Satisfying customers.
  • Limiting environmental damage.
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Entrepreneurs take advantage of business oppurtunities - 

Enterprise involves identifying oppurtunities. It can involve starting a new business or expanding. Market niche = made up of customers with a particular need.

Enterprise means taking risks - 

Balancing risk against possible rewards. Often, own money is used, but some lended from banks. So, entrepreneur needs to make enough profit to pay back borrowed money.

Entrepreneurs need particular qualities - 

  • Able to think ahead - identify oppurtunites.
  • Initiative - seek out ideas.
  • Drive and determination - turn ideas into practise.
  • Leadership skills - motivate.
  • Ability to plan - minimise risks.
  • Take calculated risks.
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Business Ownership Structures

1) Sole trader - easiest to start -

  • Easy to set up (A).
  • Be your own boss (A).
  • Decide what happens to profit (A).
  • Work long hours (D).
  • Unlimited liability (D).

2) Partnerships are like 2 or more sole traders - 

Partners have an equal say in decisions and equal profit shares (usually).

  • More ideas and share work (A).
  • More capital (money) put into business (A).
  • Each is legally responsible for what others do (D).
  • Unlimited liability (D).
  • More disagreements (D).
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Business Ownership Structures

3) Private limited companies, ownership restricted - 

Limited companies have differences. 

  • Limited liability - owners risk losing their own money.
  • Memorandum of association - who business is and where it is based.
  • Article of association - how business will run.
  • Owned by shareholders - more share = more control.

Private limited companies are firms whose shares can only be sold if all shareholders agree.

  • Limitied liability (A).
  • More expensive to set up (D).
  • Legally onliged to publish accounts (D).

Limited liability companies have their own identity.

Any money the company owns is in a seperate account to the owners. They have to pay their taxes, publish accounts etc.

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A franchise is the right to sell another firm's products - 

Products manufacturers are known as franchisors and the firms selling their products are franchisees. Some franchises trade under name of franchisee but advertise that they sell a particular product. Branded franchises go further - franchisee buys the rights to trade under the name of franchisor and pays fee or % of profits.

Pros and cons -

PRO: They can increase market share without increasinf size of their own firm - profitable. 

CON: Franchisee has poor standards, franchisors brand gets bad reputation.

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Aims, Objectives and Business Success

Success can mean different things - 

  • Survival.
  • Profit.
  • Growth.
  • Market share.
  • Environmental sustainability.
  • Ethical consideration.
  • Customer satisfaction.

Objectives help businesses achieve their aims - 

Objectives are more specific than aims - measurable steps on the way. They act as targets for firms to work towards, later used to measure steps.

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Impacts of Stakeholders

Different types of stakeholders - 

Internal - inside the firm, they include owners and employees.

External - outside the firm, they include customers, suppliers, local community and government.

Stakeholders influence objectives - 

Owners are the most important stakeholders, they decide what happens. However, 

  • Don't ignore customers.
  • Happy workers - motivation is key.
  • May not mind if local community don't like them if they sell eleswhere.
  • Owners need to consider interest of other stakeholders when setting objectives.
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The Business Plan

The plan is for the owner and financial backers - 

A business plan = outline of what a new business will do and how it will do it. It forces owners to think carefully about what the business is going to do and the resources. It should also show if the business is going to be a bad idea - save money.

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Location of Production

Location is influenced by some main factors - 

  • Location of raw materials = nearby - lower transport costs.
  • Labour supply - close to unemployment = keep wages low.
  • Transport - may need a seaport so locate close to transport links.
  • Economics of concentration - if similar businesses nearby, it will be easy to find skilled labour.
  • Communication links - good phone, internet and postal services.

Trade over internet = locate abroad.

  • Location of market - some close to suppliers, some close to customers.
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