UNIT 1 - STARTING A
BUSINESS
AQA GCSE Business Studies
ENTREPRENEUR
DEFINITION
A person who
has an idea for a
new business
and is prepared
to take risks to
make the
business work.
QUALITIES
Hard
working
Willing to
take advice
QUALITIES
Persistent
Enthusiastic
REASONS FOR STARTING A BUSINESS
EMPLOYMENT
Starting your own business is one way of making sure
you are employed and earning a living.
PROFIT
Starting your own business allows you to keep all the
profits rather than working for owners who keep the
profits.
OWN BOSS
Starting your own business allows you to make your
own decisions rather than being accountable to
someone else.
FLEXIBILITY
Starting your own business allows you to choose your
own hours of work.
INTEREST
Starting your own business allows you to earn a living
pursuing a hobby/interest.
GAP IN MARKET
Starting your own business allows you to take
advantage of a gap in the market – no other
business like it in the market
REDUCING RISK OF BUSINESS FAILURE
Write a business plan
Help with organisation. Help
monitor/evaluation business success.
Save rather than borrow
Reduces debt and amount of interest
paid on loans.
Carry out market research
Able to identify gap in market, customer
needs/wants and competition.
Choose a limited company
Limited liability – only lose what you invest
if business fails.
Start a franchise
Established brand, support/training from
franchisor and marketing costs shared.
Get advise
Get advise
Find a partner
Can provide advise, expertise and
finance.
BUSINESS ACTIVITY
Businesses offer
products and
services for sale to
consumers.
GOODS
Items that can physically seen
and touched e.g. car, furniture.
SERVICES
A service is intangible i.e. you
cannot physically touch it.
Products
Goods
(physical
items)
Services
(intangible)
Some businesses offer
both e.g. we choose
a restaurant for the
atmosphere and
environment (a
service) as well as the
food (a good).
GAP IN THE MARKET
DEFINITION
BENEFITS
Business produces a
product or identifies a
service which is not yet
available on the market
for consumers to
purchase.
• Charger higher price
for product/service –
less competition.
• Increased sales –
less competition.
• More customers –
selling
unique
product/service.
BUSINESS SECTORS
PRIMARY SECTOR
Made up of organisations in first stage of
production. Extract raw materials. Land is used to
grow items.
SECONDARY SECTOR
Made up of organisations in the second stage of
production. Primary sector resources are used to
manufacture products.
TERTIARY SECTOR
Made up of organisations that sell products and
provide services.
CHANGING TRENDS
PRIMARY SECTOR
Numbers employed
has decreased
Less natural resources to extract. Land
taken for housing/business
developments.
SECONDARY SECTOR
Numbers employed
has decreased
Cheaper to manufacture abroad. More
machinery/robotics used in production
process.
TERTIARY SECTOR
Numbers employed
has increased
More demand for products and
services.
FRANCHISE
A franchise occurs when a franchisor sells an existing
business idea to a franchisee. A franchisor is the seller
of the franchise. A franchisee is the buyer of the
franchise.
Mrs Rae
(Franchisee)
McDonalds agrees to allow me to use
the company’s name and sell the
company’s products
McDonalds
(Franchisor)
I want to
open a
McDonalds
franchise
I pay McDonalds £100,000 for the
Franchise
ADVANTAGES
DISADVANTAGES
Good chance of success – name already
established/well known.
Franchisee cannot make many decisions – must be
run according to the rule of the franchisor.
Advise and assistance (e.g. training, marketing)
given – franchisor will have experience.
Franchisee will never feel business is there own – has
been established by franchisor.
Reduced marketing costs - franchisor responsible for
market research, product development and
promoting the business
Costly way to run a business – fees, royalties (%
profits) and expensive stock must be paid for by the
franchisee.
BUSINESS OBJECTIVES
DEFINITION
An objective (or aim)
is a target that is set
for a business to
achieve.
OBJECTIVES
Survival
Provide a
good
product
Protect the
environment
EXAMPLES
Be more
ethical
Customer
satisfaction
Increase
market share
(sales)
BUSINESS OBJECTIVES
WHY SET?
EFFECTIVENESS
• Helps with decision making
and establishing priorities.
• Helps investors understand
the direction of the business.
• Provides a target so that
actual
results
can
be
compared with planned
results.
• Can motivate everyone
connected with the business
because they know what
they are trying to do.
To be effective, an objective
must clearly state:
• What the target is e.g.
increase profit by 20%
• When it has to be achieved
e.g. within 2 years
• Who is to achieve it i.e. who
is in charge of making sure
the target is hit
• How to achieve it i.e. what is
and what is not acceptable
behaviour
MARKET SHARE
DEFINITION
Market share is used by
businesses to
determine their
competitive strength in
a sector. Market
share is measured by
sales revenue or sales
volume (number of
products sold).
CALCULATING
sale of product x 100
total market sales
Total sales £m
Zone4Sports
28
Kinetics
20
RyderZee
16
Harringtons
16
Total market sales
80
Zone4Sports:
28 x 100 = 35% market share
80
SOCIAL ENTERPRISE
A social enterprise is a business which trades to
tackle social problems, improve communities,
people’s lives or the environment. Profits are reinvested to benefit society, instead of keeping it for
private gain.
Eden project in Cornwall – Focuses on
environmental concerns
The Big Issue Magazine Offers homeless people the
opportunity to earn a living by selling it
Fairtrade – As it says in the image
above
STAKEHOLDERS
DEFINITION
Are groups of
people that are
involved in business
activity either
directly (internal) or
indirectly
(external).
EXAMPLES
Government
Suppliers
Customers
EXAMPLES
Local
Community
Owners
Employees
STAKEHOLDER INTEREST
STAKEHOLDER
INTEREST
OWNERS
Wants to make maximum profit from the business.
CUSTOMERS
Wants a business to sell quality products and
provide good customer service.
EMPLOYEES
Wants the business to do well so there is job
security, chance for promotion and to earn a
good wage.
LOCAL COMMUNITY
Wants the business to behave responsibly e.g.
employ local people, reduce noise and traffic
congestion.
GOVERNMENT
Wants business to succeed. Successful businesses
will employ more people and pay more tax.
SUPPLIERS
Wants to be paid on time.
STAKEHOLDER CONFLICT
Conflict
MANAGER
CUSTOMER
Wants to raise selling prices
to maximise profits
Will not want to pay more for
their goods
OWNER
SHAREHOLDER
Wants to re-invest profits into
the business
Will want the profits shared
out to them
OWNER
TRADE UNION
Wants to pay lower wages to
their employees to maximise
profits
Trade unions who represent
the employees will not be
happy with this
OWNER
SUPPLIER
Wants to buy stock from
suppliers at minimum prices
Will want to make maximum
profits.
BUSINESS PLAN
DEFINITION
A document setting
out what the
business does at
present, plus what it
intends to achieve in
the future and how
this will be
accomplished.
SECTIONS
Financial
information
Description
of the
business
Aims and
objectives
SECTIONS
Research
Marketing
BUSINESS PLAN
BENEFITS
DIFFICULTIES
• Helps a business get a
bank loan.
• Helps keep a business
organised.
• Allows success to be
monitored
and
improvements made.
• A business can plan
contingencies.
• Lack of experience –
people
starting
a
business may not have
required skills to plan
ahead.
• Uncertainty
–
not
always easy to look
ahead and predict
what
is
going
to
happen in the market.
LEGAL STRUCTURES
Legal
structure of
business
Sole trader
SOLE TRADER
Business owned
and managed
by one person.
Partnership
Private limited
company (ltd)
PARTNERSHIP
Business owned
and run by 2 to
20 people.
LTD
Owned by
shareholders.
Shareholders
tend to be
family members
or friends.
SOLE TRADER
HOW TO SET
UP
There are no legal
requirement to set up
a sole trader business.
ADVANTAGES
DISADVANTAGES
Quick and easy to set up – no
complicated forms or procedures
to follow.
Unlimited liability – if the business
fails may have to sell personal
possessions to cover debts.
Decisions can be made quickly –
do not have to get agreement
from anyone else.
Difficult to raise money to expand –
seen more of a risk by lenders.
Keep all the profits – no one else to
share them with.
Lack of continuity – if sole trader
dies the business ends as well.
PARTNERSHIP
HOW TO SET
UP
ADVANTAGES
Partners must draw up a Deed of
Partnership. Outlines who is part of the
partnership, how much capital each
partner has put in, how profits are shared,
duties of each partner and how can join
and leave the partnership.
DISADVANTAGES
Easy to raise extra capital – all Partners have unlimited liability –
partners can contribute.
see earlier definition.
More expertise – individual partners Decisions can take longer –
can specialise in different areas.
partners may disagree about the
running of the business.
Less pressure for each partner – Profits must be shared – this can
problems and ideas can be cause resentment if one partner
shared.
feels they have contributed more
to the business.
LTD
HOW TO SET
UP
ADVANTAGES
Memorandum of Association: sets out the name
of the company, purpose, where it is registered
and statement of firms activities.
Articles of Association: sets out voting rights of
shareholders, how profits are distributed, how
directors are elected and duties/powers of
directors.
DISADVANTAGES
Limited liability – if the business fails Difficult and more expensive to set up –
shareholders will only lose the amount complicated paperwork.
they invest. Personal possessions will not
be at risk.
Business can continue if a shareholder Cannot sell shares on the Stock Market –
dies – shareholders shares can be limits the amount of capital can be raised.
transferred to someone else.
Easy to raise extra capital to expand – Accounts must be checked by
more shares can be sold in the company. independent accountant – expensive.
an
FACTORS INFLUENCING LOCATION
RETAIL
•
•
•
•
•
•
•
Cost of rent
Available premises
Crime/security
Customer parking
Competition
Transport links
Communication links
(internet access)
• Type and number of
shoppers
• Availability of labour
MANUFACTORING
• Water and power supply
• Climate (if needed for
growing)
• Availability of government
grants
• Transport and
communication links
• Closeness to raw materials
• Availability of land and
labour
• Closeness to other
manufactures/suppliers