How businesses work

How they work


Why create a business

Reasons for creating a business:

- Make a profit, big financial rewards

- Be their own boss

- Earn more than working as an employee for someone else

- Owning a business with a topic they're interested in

Other objectives:

- To offer the highest quality goods/services

- Providing good customer services

- Having a good image and reputation

- Limit their impact on the environment

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Functions of a business

- Plan future activities

- Control what the workers are doing and money being spent

- Coordinate different functions and departments to ensure they're all working towards their main objective

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Departments and their roles

Production - Turning raw materials into a finished good/service

Human Resources Management - The right number of employees of the right quality in the right place at the right time

Marketing - Identifying what customers want/need and how best to sell it to them

Research and Development - When needing to discover new ideas for products that may be wanted in the future, preparing them to be launched onto the market

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Production Stage

Primary Sector - The extraction of the raw materials from the ground e.g farming

Secondary Sector - The process of manufacturing the raw materials e.g cars

Tertiary Sector - A business providing services e.g banking

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Enterprise and Entrepreneurs

Enterprise - Creating a new business


- Innovative

- Risk takers

- Organisers

- Planners

- Perseverance

- Target either a mass or niche market

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Business Protection

Patent - A way of registering and protecting a new invention

Trademarks - Protects slogans and logos etc

Copyright - Protects written work and music

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Franchises - Special agreements between one business and another

Franchisor - The business willing to sell or license their idea, name, and reputation

Franchisee - The business wanting to buy and use the name

Franchisee benefits:

- Well known name with reputation

- Training and financial support

- Buying is done by franchisor, keeping costs low


- Must pay the franchisor for the rights

- Must run the business according to the franchisor's rules so less flexibility

Franchisor benefits:

- Get paid for the use of their name with a share of the profits

- More franchises increases the spread of their name


- Must help the franchisee set up the new franchise, taking time

- If the franchisees don't have good standards then the brand may get a bad reputation

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Industrial markets - Where businesses sell to other businesses e.g wholesalers supplying retailers

Consumer markets - Where firms sell to individual customers e.g high street shops

Local markets - Where firms sell to customers who live nearby

Electronic markets - Non physical markets where trade is completed over the internet e.g eBay

Market size - A measurement of the total volume of a given market

Market share - The percentage of sales in a particular market that belong to a company/brand.                           Market share (%) = sales ÷ total market size x 100

Market growth - When demand for a product increases.                                                                            Market growth = difference between size of old and new market ÷ size of old market x 100

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Market Segmentation

Market segmentation - Identifying the different types of customer in a market e.g gender

Segmentation can be done by:

- Income

- Age

- Gender

- Lifestyle

Businesses monitor sales to make sure their marketing strategies are having the right effect

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Primary and Secondary Research

Primary Research:

- Uses sampling e.g questionnaires and interviews to make predictions about the whole market off that sample

-  It is always up to date 

- However it is labour intensive, expensive and slow

Secondary Research:

- Internal sources of data e.g loyalty cards, and feedback from salesmen, stock records

- External sources of data e.g government publications, and pressure groups, trade magazines

- Secondary data is easier, faster, and cheaper

- However it may contain errors and be out of date

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Types of sampling

Simple random sample - Names are picked randomly from a list

Stratified sampling - Population divided into groups and people selected randomly from each group

Quota sample - People are picked who fit into a category

Market research must avoid being biased, and the lower amount spent on the research increases the risk

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Partnership - A group of individuals working together with unlimited liability


- More owners so more capital to start with

- Can provide cover for each other as well as more ideas


- Unlimited liability so liable for all the debts of the business

- A risk of conflict between partners as they're all liable for decisions made by other partners

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Sole Traders

Sole trader - A business run by one person with unlimited liability, known as an unincorporated business


- Keep all the profit

- Freedom over decisions

- Savings on fees 


- Responsible for all the debts

- No cover if they're unavailable for a day

- Usually work long hours because of deadlines

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Private and Public Limited Companies

These companies have limited liability, owned by shareholders, and run by directors

Private Limited Companies (Ltd):

- Can't sell shares to the public

- Usually small family businesses

- No minimum share capital requirment

Public Limited Companies (Plc):

- Can sell shares to the public

- Require over £50,000 of share capital

- Usually start as an Ltd and expand to a Plc to raise more capital

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