Business Studies AS Unit 1

Unit 1



Enterprise is:

It is the process by which new businesses are formed and new products and services are created and brought to the market.

Entrepreneurs are:

Individuals who have an idea that they develop and start up a new business and encouraging it to grow

Opportunity cost is:

The ‘real cost’ of taking a particular action or the next best alternative you could have chosen but didn’t

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Characteristics of a successful entrepreneur are:

·         Determination

·         Passion

·         Ability to spot and take advantage of opportunities

·         Relevant skills and expertise

·         Vision, creativity and innovation

·         Motivation

·         Willingness to take risks

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Failure often occurs because:

·         Lack of finance

·         Poor infrastructure

·         Skills shortage

·         Complexity of regulations and red tape

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The government have made it easier to start up and run a business by:

·         Reducing business taxes

·         Reducing regulatory burdens

·         Reducing barriers to raising finance for small businesses

·         Improving the support for small and new businesses

·         Encouraging unemployed people to move into self-employment

·         Giving financial support to non-profit organisations

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Generating business ideas

Sources of business ideas:

·         Spotting trends and anticipating their impacts – looking at the market to see the latest trends (e.g. Innocent drinks)

·         Indentifying a niche market –  noticing something is missing from the market or that can be improved on (e.g. red letter days)

·         Copying ideas from other countries – go to different countries and see what they have that we don’t (e.g. starbucks)

·         Taking a scientific approach – working in a university or laboratory to invent original new products (e.g. Dyson Hoovers)

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Benefits of operating a franchise:

·         They involve the least amount of risk for a start-up business

·         Franchises businesses usually have already established brand names

·         Financing the business may be easier because banks are more willing to lend money

·         The franchisee is likely to incur lower advertising costs  

Franchise is:

When a business (the franchisor) gives another business (the franchisee) the right to supply its product or services

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Downfalls of operating a franchise:

·         Costs may be higher than expected

·         Other franchisees could have given the brand a bad reputation

·         Possibility the franchisor hasn’t researched the business carefully

·         If the franchisor goes out of business it has a direct impact on the franchisee’s business

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Protecting business ideas


·         Legal protection against coping for authors, composers and artists

·         In general the copyright lasts 70 years or until the death of the creator


·         Official document granting the holder the right to be the only user or producer of a newly invented product

·         The patents act gives patent holder the right to use, make, licence or sell the invention for up to 20 years after it has been registered

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·         Signs, symbols, logos or words displayed on a company’s product, which distinguishes it from any other brand

·         Once the trademark has been registered, the company has exclusive rights to its use

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Factors of Production

·         Land – natural resources that can be used for production such as coal, oil and gravel, and also livestock such as sheep, pigs and cows

·         Labour – this is both the physical and mental effort involve in production , all those providing manual effort to produce the finishing goods

·         Capital – this means goods that are made in order to produce other goods and services

·         Enterprise – is carried out by the entrepreneur who makes decisions and financial risks , therefore earns the profit that can be made from converting inputs into outputs

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Improving the efficiency of factors of production:

·         Improving the fertility of land

·         Using renewable or recyclable resources

·         Greater education and training of the workforce

·         Increasing the level of investment in capital equipment

·         Improving in entrepreneurial skills and a willingness to take risks

·         Combining the factors of production in a balanced way

·         Extending the overall scale of production

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Classifying Outputs

Outputs of the transformation process are:

·         Natural resources (Inputs or primary production)

·         Semi-finished and finished goods (transformation process or secondary production)

·         Services (Outputs or tertiary production)


Primary production

·         The extracting of raw materials such as farming, fishing, mining, oil exploration and quarrying

·         It is simple but can be expensive

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Secondary production

·         Describes the process of converting primary products into finished products

Tertiary production

·         The organisations involved in providing the product or service

·         The services are classified in two way:

o   Commercial – where the service is provided for another business

o   Personal – where the service is provided directly to the individual

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Business Plans

Benefits of a business plan:

·         Helps set objectives and targets

·         It is a good document to have if persuading lenders to invest in capital

·         It is a plan to help keep your finances in order

Drawbacks of a business plan:

·         It needs to be accurate and realistic

·         Many business plans tend to be over optimistic in their sales forecast

·         Business underestimate the cost of the start up of the business

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Contents of a business plan:

·         Details about the business –the name and location

·         Personal information – information about the owner, CV and business skills

·         Objectives – what the business is aiming to achieve

·         Marketing plan – show the gap in the market the business is trying to set up

·         Production plan – how the goods and services will be created

·         Fixed assets – details of the fixed assets

·         Financial forecast – sales and cashflow forecast

·         Details of finance needed and repayment –  how much and what form is the finance needed

·         Long term plans – brief plan of long term forecast

·         SWOT Analysis – strengths, weaknesses, opportunities and threats

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Market research

Types of market research:

·         Primary market research Collection of data first-hand for a specific use

·         Secondary market research  Information that has already been collected for a different purpose

·         Qualitative market research  information based on opinions and reasons

·         Quantitative market research  information base on numbers

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Methods of conducting primary research:


Organisation experiments with a particular approach in certain areas for a certain time


·         Relatively cheap finding out customer preferences

·         Considers actual customer behaviour rather than a questionnaire


·         Consumer behaviour may not be the same throughout the country

·         It may delay the introduction of potentially successful strategy

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Consumers are questioned about the product or service


·         This method is fairly cheap  

·         A wide range of information can be gathered


·         People may not answer truthfully so therefore the data is not valid

·         There is no guarantee that response rates are representative of the public as a whole

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Stores watch customers while they are shopping and gather information on customer reactions and thought processes


·         The layout of display can be modified if observation reveals any problems

·         Observations examine actual customers


·         It is expensive to employ specialist psychologists to observe the behaviour

·         It shows what is happening rather than why it’s taking place

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Secondary research:

·         It can be gained from examining public documents

·         Primary research can fill in any gaps that the secondary research doesn’t have


·         It saves firms a large amount of money

·         It is reasonably accurate

·         The information is ready available


·         The information may be data and therefore misleading

·         May not know the level of accuracy

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Qualitative research:

·         Tell us ‘why?’ or ‘how?’

·         Organisation can use this to plan appropriate strategies


·         Business can gain a greater insight into what it needs to do to appeal to its consumers

·         The research can highlight issues that the business where not aware of

·         Can give a detailed insight to what the customers’ thinking


·         It is expensive to gather the data and requires skilled personnel to interpret it

·         It is difficult to compare with other data

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Quantitative research:

·         Tell us ‘how many?’ or ‘how often?

·         Excellent for analysis


·         In summarises data into a concise and meaningful way

·         The use of numerical data makes it easier to compare the data

·         Numerical data can identify trends


·         It only shows ‘what?’ not ‘why?’

It can lack reliability and validity

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Different types of sampling:

·         Random – everyone has an equal chance of being picked

o   Can be selecting names from databases

o   A personal surveyor stopping you in the street

·         Quota – a group of respondents sharing a common feature

o   It has a specific target market

o   Once the quota has been reached no more interviews should take place

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  Stratified – a group of respondents picked according to particular features (e.g. age, gender)

o   People are randomly selected as long as they fit the criteria

o   It is the most time consuming and needs good population information

Drawbacks to sampling:

·         Samples may be unrepresentative

·         There may be bias in questions or in the answers

·         It may be difficult to locate suitable respondents

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Factors influencing the choice of sampling methods:

·         Costs and the availability of finance Random sample is the cheapest method, quota sampling can also be cheap

·         Time Random sampling can be conducted more speedily

·         The importance of market segments Quota and stratified sampling is best for the market segments

·         Whether the business is targeting specific groups of customers if the market is trying to identify the opinions of one group quota or stratified sampling will be use

·         The firms understanding of its customer base they need to know who they are trying to market too

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Local Markets

·         Most common form of market for consumer goods

·         Local markets include the traditional type of market, where fresh produce is sold

National markets

·         This could be a company operating in the national market if its product or service is sold all across the country (e.g. BHS, Lloyds TSB)

·         It could also be industrial or primary products such as building materials which are traded on a national or even international scale

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Physical Markets

·         There is an actual  place where the buyers and sellers meet

Non-physical markets

·         This is mainly where things get sold on the phone, internet etc.

·         The buyer and sell do not see each other  

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Factors influencing demand:

·         Price- As the price in product rises, demand usually fallls

·         Income and wealth of consumers -As consumers’ income increases, their overall demand for products also rises

·         Tastes and fashion -As taste and fashion changes so frequently this effects demand as companies need to keep up with the latest trend

·         Price of other goods

o   Substitutes – if the price of the substitute increases, this makes the original product appear to be much better value for money

o   Compliments –these are products that sit beside each other like shampoo and conditioner, if the demand for one increases, the demand for the other one will also increase

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·         Demographic factors -This is related to the population, in the UK over years the population has grown which has lead to an overall increase in demand

·         Marketing and advertising -Successful advertising can lead to an increase in demand

·         Competitors action -The demand for a product will also be influenced by the strategies of a competitor

·         Seasonal factors -For example, ice cream has a high demand in summer but in winter the demand drops as the weather is different

·         Government action -The government can subsidise a product to reduce its price

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Market segmentation

Types of market segmentation:

·         Age

·         Gender

·         Social class

·         Residential

·         Lifestyle

·         Usage/Frequency of purchase

Benefits of market segmentation:

·         To increase market chare

·         To assist new product development

·         To extend products into the market

·         To identify ways of marketing a product

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Drawbacks of market segmentation:

·         Difficulty in identifying the most important segment for a product

·         Reaching the chosen segment with marketing

·         Recognising changes in the segments interested in the product

·         Meeting the needs of customers not in the chose segment

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Legal structure

Unincorporated This is where there is no distinction in law between the individual owner and the business itself, these tend to be sole traders or partnerships

Incorporated -   This has a legal identity that is separate from the individual owner, these tend to be private limited companies and public limited companies

Limited liability - A situation which the owners of a business is limited to the fully paid-up value of the share capital - A situation which the owners of a business are liable for all the debts that the business may incur

Unlimited liability

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Private limited company

·         A small to medium sized business that is usually run by family or the small group of individuals that own it

Public limited company

·         A business with limited liability, a share capital of over £50,000, at least 2 share holders, 2 directors, a qualified company secretary and a wide range of shareholders, it also usually has ‘PLC’ after the companies name

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Raising finance

Sources of finance:

· Personal sources

o   Cheap for of finance

o   Could lose all your money invested

· Ordinary share capital

o   It’s not necessary to pay shareholders a dividend if the business cannot afford it

o   The original aims of the business may get lost as new shareholders may not have the same values

· Venture capital

o   They help provide advice to the business

o   They often demand a large share in the business in return for their investment

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·         Loan capital (banks)

o   Interest rates are normally low because of the security provided

o   The size of the loan maybe limited

·         Bank overdraft

o   They are extremely flexible

o   The interest rate charge is usually higher that the loan

Choosing a source of finance:

·         The legal structure of a business

·         The use of its finance

·         The amount required

·         The firms profit level

·         The level of risk involved

·         View of the owner

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Locating a business


With the development of technology of communications it is easier for employees to work away from the business usually at their home using telecommunication technology

Least-cost site

This is where the business location allows the firm to minimise cost by choosing the cheapest location to move to and hence it’s selling price

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The main costs influencing location are:

·         Land costs -For businesses a large percentage of total costs is spent of land, this is why the try and find the least-cost site by maybe locating away from town centres

·         Labour costs -In different areas of the UK the wages are at different levels, it is best for a company to find a region that has low wages

·         Transport costs -  The location of the raw materials is crucial for primary industries, therefore locating near the raw materials will save transport costs

·         Infrastructure -Have good infrastructure near your business is important so you can delivery you goods and receive raw materials and also so the workers can get to work on time

·         The market - The market is a major factor influencing location, they will look at potential customers in the area

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Qualitative factors (factors based on opinions of individuals):

·         Convenience

·         Unique selling point

·         Quality of life

Locating a small business:

·         Economic wealth of an area

·         Pedestrian flow during opening hours

·         Parking factors

·         Location history

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Employing people

Types of employees:

·         Permanent employees

·         Temporary or fixed-term contract employees

·         Employees on zero-hour contracts (On-call work)

·         Employment agency staff

·         Self-employed freelancer, consultants and contractors

Advantages of employing part-time staff:

·         Efficient way of keeping costs down

·         Part-time work suits employees

·         Opportunity of part-time work may mean the business can retain valued employees

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Drawbacks to employing people:

·         The cost of employing people

·         Meeting the range of employment legislation requirements

·         Managing staff

·         Employee absence

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