GCSE Business Studies

Unit 1 Key Terms

Section 1 Starting a Business

Section 1.1 Starting a Business

What is a business?

A legally recognised organisation designed to produce goods and services for a business

Consumer Goods

Good provided for consumers, they may be single use like food or durables lake TV’s,
fridges

Producer Goods

Business to business goods that allow one business to help another business produce e.g.
machinery

Factors of production

The key factors that go into making goods e.g. land, labor, capital, enterprise

Opportunity cost

The cost of the alternative that has to be given up when a choice is made.

Niche Market

A small part of a market that an organisation is aiming its product or services at e.g. Tyrell’s
hand made crisps

Entrepreneur

An entrepreneur is defined as someone who has the ability to take risks and organize the
factors of production.

Copyright and Patent

A business may also need to protect its idea or products. It can do this through:

 Copyright and patents make it illegal for other firms to copy directly the business
idea or invention.

Social enterprise

A social enterprise is a business with primarily social objectives whose surpluses are
principally reinvested for that purpose in the business or in the community e.g. One water

Section 1.2 Setting Business Aims and Objectives

Business Aims

An aim is where the business wants to go in the future, its goals. It is a statement of purpose,
e.g. we want to grow the business into Europe.
Business Objectives

Business objectives are the stated, measurable targets of how to achieve business
aims. For instance, we want to achieve sales of €10 million in European markets in 2011.

S – Specific – objectives are aimed at what the business does, e.g. a hotel might have an
objective of filling 60% of its beds a night during October, an objective specific to that
business.

M - Measurable – the business can put a value to the objective, e.g. €10,000 in sales in the
next half year of trading.

A - Agreed by all those concerned in trying to achieve the objective.

R - Realistic – the objective should be challenging, but it should also be able to be achieved
by the resources available.

T- Time specific – they have a time limit of when the objective should be achieved, e.g. by
the end of the year.

A mission statement sets out the business vision and values that enables employees,
managers, customers and even suppliers to understand the underlying basis for the actions of
the business.

Changing Objectives

A business may change its objectives over time due to the following reasons:

A business may achieve an objective and will need to move onto another one (e.g. survival
in the first year may lead to an objective of increasing profit in the second year).

The competitive environment might change, with the launch of new products from
competitors.

Technology might change product designs, so sales and production targets might need to
change.

Stakeholders

A stakeholder is any individual or organization that is affected by the activities of a business.

They may have a direct or indirect interest in the business, and may be in contact with the
business on a daily basis, or may just occasionally.
E.g. shareholders, employees, suppliers, community, management

Section 1.3 business Planning

Business Plan

A business plan sets out how a business is going to achieve its aims and objectives. It is
extremely useful for a new business to use a plan because it can be used to show potential
investors how their money is going to be spent.

A business plan will probably contain the following elements:

 Statement of aims and objectives

 Description of market the business is selling to
 Main competitors (how will they respond to a new competitor?)
  Production and sales forecasts
 Equipment needed
 Distribution plan for how to get product to customers

Section 1.4 choosing the appropriate legal structure

Sole Trader

A sole trader is a business that is owned by one person. It may have one or more
employees. It is the most common form of ownership in the UK.

Partnership

A partnership is a business where there are two or more owners of the enterprise. Most
partnerships are between two and twenty members though there are examples like John
Lewis and some of the major world accountancy firms where there are hundreds of partners.

A partner is normally set up using a Deed of Partnership. This contains:

 Amount of capital each partner should provide (i.e. starting cash).

 How profits or losses should be divided.
 How many votes each partner has (usually based on proportion of capital provided).
 Rules on how to take on new partners.
 How the partnership is brought to an end, or how a partner leaves.

Private limited Company (LTD)

A limited company is a business that is owned by its shareholders, run by directors and most
importantly whose liability is limited. Shares can only be sold to friends and family or
nominated individuals

Limited liability means that the investors can only lose the money they have invested and no
more. This encourages people to finance the company, and/or set up such a business,
knowing that they can only lose what they put in, if the company fails.

Franchise

A franchise is where a business sells a sole proprietor the right to set up a business using
their name.

Section 1.5 choosing the location of the business

Business location

Every business has to be located somewhere. A sole trader who works as a window cleaner
may operate from home, where as a multinational car company will have factories, offices and
outlets in many countries. For both businesses however, where to locate may be the most
important decision they make and can determine their success. It is a very expensive decision
to reverse.

Section 2 Marketing

Section 2.1 Conducting Market Research with limited budgets

Marketing

“The process of identifying, anticipating (predicting) and satisfying customer needs

profitably”
What does it mean?

Identifying – finding out by using marketing research about current products, the possibility
of new products, and about current markets and possible new markets.

Anticipating (predicting) – analyzing the data collected and using the managers’ skills to
judge what might happen in these markets and how the products might be suited or changed,
adapted or updated.

Satisfying customer needs – making sure the person, business or government is happy
with what they are buying, will not complain and will be happy to buy again if appropriate.

Profitably – adding value to the product so when sold, the price of the product is greater than
cost of the inputs.

Market research

Marketing research means finding out about the product and its market place. It is an
important part of identifying and anticipating customers needs. Once the product has been
bought, marketing research can be used to see if the customer was satisfied.

Secondary research

Data that already exists and is available. Also known as desk research as it can be
conducted from a computer e.g. company reports, news articles

Field research

Data collected for a specific purpose at the time it is required and usually
Involves surveys or interviews. This can also be called Primary Data.

Questionnaire

A quantitative method of seeking opinions on products or services

Focus group

A small group of people selected to provide their opinions and views of a product

Section 2.2 Using the Marketing Mix

Marketing Mix

The marketing mix is often referred to as the “Four P’s” - since the most important elements
of marketing are concerned with:

Product - the product (or service) that the customer obtains.

Price - how much the customer pays for the product.

Place – how the product is distributed to the customer.

Promotion - how the customer is found and persuaded to buy the product.

It is known as a “mix” because each ingredient affects the other and the mix must overall be
suitable to the target customer.
Product

Anything that can be offered for sale e.g. a good, a person, or service

The most important element of the marketing mix

Premium price

Setting a high price to provide a specific brand image e.g. Porsche

Penetration price

A pricing strategy when pricing is set lower than competitors. Prices to enter a
New market.

Price skimming or creaming

Setting a high price for new products to help recover development costs. Prices
are lowered when competitors come onto the market.

Place

The distribution channels or method of getting the product to the customers

Promotion

AIDA =

Awareness
Interest
Desire
Action

E-commerce

E-commerce is the use of the Internet and email to buy, sell and market products. It has
grown in use considerably in the last five years, though it still makes up a surprisingly small
part of the whole retail market (less than 5% for most retail segments).

Businesses are increasingly under pressure to provide an e-commerce aspect to their

business – particularly those that sell to consumers (known as “B2C” or “Business to
Consumer”). This is normally in the form of a website and certainly email.

A website can be used to provide information on the product/business, or provide a pace

where sales can be made. If sales are required then there needs to be a link to a warehouse
for goods, so dispatch can be made.

Section 3 Finance

Section 3.1 Finance and support for small business

Internal finance

Finance generated from inside the business

Owner’s funds/capital

Finance provided by the owners, no interest but it could be lost if the business goes into
bankruptcy

External finance

Finance from outside of the organisation

Overdraft

A means of taking more money from a bank account than is in the account,
usually with interest charged. Cheap in short-term, but quite expensive for a long term source

Bank loan

A source of finance provided by a bank, interest has to be paid and a business plan may be
needed

Mortgage

A long-term source of finance usually secured on property. It can be for 25 or 30 years

Government Grants

Money given to a firm to help it to operate and expand. This does not have to be
paid back.

Retained profits

Profits generated by the business for reinvestment into the business

Factoring

Selling debt to a third party, who will then collect the debt.

Business angel

A person who will invest in a new business, no equity will be required

e.g. Dragons den

Venture capital

Finance provided by a large business e.g. 3i – investors in industry – they may want some
equity and a say in decision making

Section 3.2 Financial terms and simple calculations

Price

The amount a customer has to pay for a good or service

Sales revenue/turnover

The total number of sales generated by a business e.g. quantity Sold X Selling price

Fixed costs

Costs which do not change as output changes. E.g. rent, rates, lighting, heating
Variable costs

Costs that change as output changes e.g. materials and wages

Total costs

The combined total of fixed costs and variable costs for any level of output.

Profit

Profit is the difference between the income of the business and all its costs/expenses. It is
normally measured over a period of time.

Profit is important to a business because:

It is a reward to the owners of the business. They have taken risks with their money and
time. If there was no profit, then there would be little point in starting up or putting more
money into the business, they might as well put the money into a bank or building society

Profit can be used to buy

Profits are an important source of investment funds.
more stock, improve technology or expand the premises

Section 3.3 Using cash flow

Cash flow statement

A document detailing the inflows and outflows of cash in the business. It can be used to
identify periods of positive and negative cash flow where an overdraft might be needed

Overtrading

Occurs where a business attempts to grow too rapidly and cash drains out of the business
and causes a negative cash flow position.

Receivership

Is the situation in which an institution or enterprise is being held by a receiver, a person

"placed in the custodial responsibility for the property of the business

Reschedule payments

Take longer to pay your suppliers and get customers (debtors) to pay the business much
more quickly

Section 4 People in Business

Section 4.1 Recruiting

Recruitment

The process of obtaining the right person for a job. It will involve advertising a vacancy,
drawing up a job description, person specification, and shortlist

Selection

The process of deciding who the right candidate is for a job e.g. Interview, tests

Internal recruitment
Obtaining staff from inside the business e.g. notice board, personal recommendation,
promotion

External recruitment

Obtaining staff from outside of the organisation e.g. job centre, employment agencies

Remuneration/ Methods of payment

The different methods of paying employees

Wages

Payment for work usually paid weekly for working a set time each week e.g. 37 hours Overtime is paid
at time and a half

Salary

A system of pay based on an annual income, paid monthly or weekly, that may
not state the number of hours to be worked

Bonus

An additional amount of money above normal pay as a reward for good work or achieving a particular
level of profits

Commission

An additional payment for achieving a level of sales. Some sales jobs like Avon and
Bettaware are commission only.

Fringe benefits (Perks)

Non-monetary rewards given as incentives to employees. E.g. tickets to cup final, company car, health
care

Pension payments

Employer making a contribution to an employee’s pension

Section 4.2 Motivating Staff

Motivation

Motivation is the will to work. This comes from the enjoyment of the work itself and/or from
the desire to achieve certain goals e.g. earn more money or achieve promotion.

Maslow’s hierarchy of needs

Maslow suggests employees have a range of needs that should be met to motivate staff.
These start with physiological needs, pay, shelter, safety needs, social needs – love and
belonging, uniform, team working, self esteem, responsibility for tasks and self
actualisation, project team manger and

Herzberg – motivating factors

Motivator factors are based on an individual's need for personal growth. When they exist,
motivator factors actively create job satisfaction. If they are effective, then they can motivate
an individual to achieve above-average performance and effort. Motivator factors include:
- Status

- Opportunity for advancement

- Gaining recognition

- Responsibility

- Challenging / stimulating work

- Sense of personal achievement & personal growth in a job

Herzberg – Hygiene factors

Hygiene factors are based on the need to for a business to avoid unpleasantness at work. If
these factors are considered inadequate by employees, then they can cause dissatisfaction
with work. Hygiene factors include:

- Company policy and administration

- Wages, salaries and other financial remuneration

- Quality of supervision

- Quality of inter-personal relations

- Working conditions

- Feelings of job security

Section 4.3 Protecting staff through legislation

Legislation

The way in which a business can operate is controlled by legislation. Laws can be imposed by
the UK or European Union courts and government. Legislation mainly acts as a constraint on
business.

The main areas of legislation that affect businesses are:

 Employment law
 Consumer protection
 Competition law

Health and Safety at Work Act 1974

Employers must provide safe premises and machinery. They must ensure that workers health
is not affected by their work.

The key costs and benefits of the Health and Safety at Work Act for a business are:

- Adds to costs to businesses that need to train staff and spend money maintaining the
standards set out.

 - BUT may reduce cost in the long term because of a reduction in staff absences and
not having to pay compensation for injuries.
  - Good health and safety record is a good way of encouraging recruitment of good
workers.

Equal Pay Act 1970

Employees who do equal work or work of equal value must receive the same pay as workers
of the other sex.

Sex Discrimination Act 1975

Employees cannot be sexually discriminated in employment, training or recruitment.

Race Relations Act 1976

It is illegal to discriminate against someone on the basis of race, ethnic group or colour.

Discrimination

A business when employing a member of staff cannot discriminate on the round of sex, race
or disability.

Section 5 Operations Management

Section 5.1 Production methods for manufacturing and providing a service

Operations Management

The transformation of production and operational inputs into "outputs" that, when distributed,
meet the needs of customers.

Added value

The difference between the value paid for the inputs used in production and the
value of a firm’s output. As stated in the selling price.

Job production

Job production involves firms producing items that meet the specific requirements of the
customer. Often these are one-off, unique items such as those made by an architect or
wedding dressmaker. For an architect, each building or structure that he designs will be
different and tailored to the needs of each individual client.
Batch Production

Batch methods require that a group of items move through the production process together, a
stage at a time.

For example when a bakery bakes loaves of whole meal bread, a large ball of whole meal
dough will be split into several loaves which will be spread out together on a large baking tray.
The loaves on the tray will then together be cooked, wrapped and dispatched to shelves,
before the bakery starts on a separate batch of, for example, crusty white bread.

Efficiency

Operating at maximum output while having the lowest costs per unit

ICT

Information Communications Technology

Quality

“A quality product needs to be ‘fit for purpose’. This means the product must meet or
exceed the customer requirements.”

Section 5.2 Customer Service

Customer service

The provision of service to a customer before, during and after purchase

Reliability

The feature of a product or service that makes a customer buy it again. E.g. it does not break
down or deliveries arrive on time.

After sales service

The follow up service after purchase e.g. to ask if you are satisfied with the product or if it
breaks down how the business deals with the repair

Consumer protection

Rights designed to help customers when purchasing goods or services. They provide
protection is goods are improperly manufactured, delivered, performed, handled, or
described.