UNIT 1 - STARTING A BUSINESS

AQA GCSE Business Studies

ENTREPRENEUR

DEFINITIONA person who

has an idea for a new business

and is prepared to take risks to

make the business work.

QUALITIES

REASONS FOR STARTING A BUSINESS

EMPLOYMENT Starting your own business is one way of making sure you are employed and earning a living.

PROFITStarting your own business allows you to keep all

the profits rather than working for owners who keep the profits.

OWN BOSSStarting 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

Choose a limited company

Save rather than borrow

Carry out market research

Start a franchise

Get advise

Find a partner

Help with organisation. Help monitor/evaluation business success.

Limited liability – only lose what you invest if business fails.

Reduces debt and amount of interest paid on loans.

Able to identify gap in market, customer needs/wants and competition.

Established brand, support/training from franchisor and marketing costs shared.

Get advise

Can provide advise, expertise and finance.

BUSINESS ACTIVITY

GOODSItems that can physically seen and touched e.g. car, furniture.

Businesses offer products and

services for sale to consumers.

SERVICESA service is intangible i.e. you

cannot physically touch it.

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

Business produces a product or identifies a service which is not yet available on the

market for consumers to purchase.

BENEFITS• Charger higher

price for product/service – less competition.

• Increased sales – less competition.

• More customers – selling unique product/service.

DEFINITION

BUSINESS SECTORSPRIMARY SECTOR

Made up of organisations in first stage of production. Extract raw materials. Land is used

to grow items.

SECONDARY SECTORMade up of organisations in the second stage of production. Primary sector resources are used

to manufacture products.

TERTIARY SECTORMade up of organisations that sell products and

provide services.

CHANGING TRENDSPRIMARY 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.

FRANCHISEA 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.

ADVANTAGES DISADVANTAGESGood 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.

Mrs Rae(Franchisee

)

I want to open a

McDonalds franchise

McDonalds(Franchisor)

McDonalds agrees to allow me to use the company’s name and

sell the company’s products

I pay McDonalds £100,000 for the Franchise

BUSINESS OBJECTIVES

DEFINITIONAn objective (or aim) is a target that is set

for a business to achieve.

OBJECTIVES

BUSINESS OBJECTIVES

WHY SET?• 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.

EFFECTIVENESSTo 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

DEFINITIONMarket share is used by

businesses todetermine their

competitive strength ina sector. Market

share is measured bysales revenue or sales

volume (number ofproducts sold).

CALCULATING sale of product x 100

total market sales

Zone4Sports:28 x 100 = 35% market share80

Total sales £m

Zone4Sports 28

Kinetics 20

RyderZee 16

Harringtons 16

Total market sales 80

SOCIAL ENTERPRISEA social enterprise is a business which trades to tackle social problems, improve communities,

people’s lives or the environment. Profits are re-invested 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

DEFINITIONAre groups of

people that are involved in

business activity either directly (internal) or

indirectly (external).

EXAMPLES

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 CONFLICTMANAGER

Wants to raise selling prices to maximise profits

CUSTOMERWill not want to pay more

for their goods

OWNERWants to re-invest profits

into the business

SHAREHOLDERWill want the profits shared

out to them

OWNERWants to pay lower wages

to their employees to maximise profits

TRADE UNIONTrade unions who represent the employees will not be

happy with this

OWNERWants to buy stock from

suppliers at minimum prices

SUPPLIERWill want to make maximum profits.

Conflict

BUSINESS PLAN

DEFINITIONA 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

BUSINESS PLAN

BENEFITS• 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.

DIFFICULTIES• 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

SOLE TRADERBusiness

owned and managed by one person.

PARTNERSHIP

Business owned and run

by 2 to 20 people.

LTDOwned by

shareholders. Shareholders

tend to be family

members or friends.

SOLE TRADER

HOW TO SET UP

ADVANTAGES DISADVANTAGESQuick 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.

There are no legal requirement to set up

a sole trader business.

PARTNERSHIP

HOW TO SET UP

ADVANTAGES DISADVANTAGESEasy to raise extra capital – all partners can contribute.

Partners have unlimited liability – see earlier definition.

More expertise – individual partners can specialise in different areas.

Decisions can take longer – partners may disagree about the running of the business.

Less pressure for each partner – problems and ideas can be shared.

Profits must be shared – this can cause resentment if one partner feels they have contributed more to the business.

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.

LTD

HOW TO SET UP

ADVANTAGES DISADVANTAGESLimited liability – if the business fails shareholders will only lose the amount they invest. Personal possessions will not be at risk.

Difficult and more expensive to set up – complicated paperwork.

Business can continue if a shareholder dies – shareholders shares can be transferred to someone else.

Cannot sell shares on the Stock Market – limits the amount of capital can be raised.

Easy to raise extra capital to expand – more shares can be sold in the company.

Accounts must be checked by an independent accountant – expensive.

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.

FACTORS INFLUENCING LOCATION

RETAIL 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

• Cost of rent• Available premises• Crime/security• Customer parking• Competition• Transport links• Communication links

(internet access)• Type and number of

shoppers• Availability of labour