AQA

GCSE Business
(8132)
Knowledge Booklet

Name _____________________________________________

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Business Studies Data Capture Assessment Record
Target
Grade

Year 10 Year 11
Data Current P Cestrian Learning Behaviour Data Current P Cestrian Learning Behaviour
Capture Prediction Way Focus Focus Capture Prediction Way Focus focus
1 1

2 2

3 3

4 4

Blue = Above Green = On Yellow = Near Red = Below

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1) Business in the Real World (papers one & two) 14 Factors of production  Land – the physical land and the site on which the business is located
and other natural resources a business might use.
1 Business A business is an organisation that produces a good or supplies a service.  Labour – the skills and numbers of employees employed by a
2 Purpose of business Produce goods or supply services that are demanded by others to fulfil business.
the needs and wants of its customers, distribute products, fulfil a  Capital – the equipment used to provide the goods or services, such
business opportunity and provide a good or service to benefit others. as machinery or equipment.
3 Needs A need is a basic human requirement – we need to eat and drink.  Enterprise – the skills of the people involved in the business to
4 Wants A want is a desire for a particular product – we need to drink, but we identify business opportunities and bring together resources to meet
these opportunities.
want Coca-Cola.
5 Good Is a physical tangible product such as a car. 15 Enterprise Is another word for a business. It also refers to the skills.
6 Service Is an intangible product, such as financial advice, or a hair dresser. 16 Resources Are the inputs that businesses use to provide their goods or services.
7 Customer Is someone who buys a product from a business. 17 Opportunity Cost Is the sacrifice we make whenever we decide to do anything
e.g. if you decide to invest in a business, then you are not using these
8 Consumer Is someone who uses goods and/or services produced by a business
savings to earn money, which is known as interest, in the bank.
9 Reasons for starting a  They want to be their own boss and make their own decisions.
18 Primary Sector Is made up of organisations that are at the first stage of production and
business  They want to keep all the profits of a business for themselves – (earn
use raw materials. (Farms, oil exploration companies and fishing fleets).
more money).
19 Secondary Sector Is made up of organisations that are at the second stage of the
 They need a job (starting a business is one way of getting a job).
production process. They are involved in using primary resources and
 They have an interest or hobby and this grows into a business.
converting these into products. (manufacturers and printers).
 They want to prove something to themselves and get a sense of
20 Tertiary Sector Is the final stage of the production process and is made up of
satisfaction.
organisations that provide services. (fast food stores, estate agents, and
 They are unhappy with their current job and want to do something delivery companies).
different.
21 Functions of a  Marketing
 They want more flexible working hours and work when they want. Business  Human resources
 They have spotted a business opportunity to provide a good or
 Operations
service – identified a gap in the market.
 Finance
 They want to provide a service to help others (social enterprise).
10 Entrepreneur Is someone who is willing to take the risks involved in starting a new
Regardless of the size of the organisation they will have these functions.
business in return for the rewards (profit, status, satisfaction etc.)
A sole trader may carry out all of these functions, whereas in a bigger
11 Entrepreneurship Refers to the ability to be an entrepreneur – to take risks to develop a business they may have a small team for each function.
business idea.
22 The Business A business will be affected by changes in the ‘business environment’
12 Characteristics of an  Innovative – good at spotting an opportunity – can identify problems Environment these are all factors outside a business that can affect it.
Entrepreneur and develop solutions. They have a vision of how things could be.  Technological change
 Risk Takers – in reality many new ideas fail – you may have lost your  Economic change
savings.
 Legal change
 Hard working and determined – you need to be prepared to struggle,
 Environmental expectations
you will not be well known and will have to work hard to develop
23 Interest Is the money paid by banks as a reward to attract people to save with
good relationships with customers and suppliers.
them.
 Organised – running your own business involves many skills and many
24 Interest Rates Refer to the cost of borrowing money or the reward for saving money,
decisions. You will have to be good at meeting deadlines.
expressed as a percentage.
25 Gross Domestic Measures all the income earned in a country’s economy in a year.
13 Social Enterprise Is a business that is set up to help society rather than to make a profit.
Product (GDP)

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26 Sole Trader Is someone who sets up in business on his or her own to-day business whilst the owners retain  The business must pay corporation tax, which
Advantages of a sole trader Disadvantages of a sole trader control. may be more than if they just had to pay income
 You are your own boss.  Unlimited liability. tax.
 Can decide things quickly.  May lack finance.  Any individual that invests and owns shares will
 Quick and easy to set up.  Heavy workload. have a vote on how the business is ran – slowing
 Keep all the profits.  May not have all the skills required. decision making down, have different objectives.
 Make your own decisions.  Difficult to take a holiday. 31 Public Limited  Is owned by its shareholders.
27 Partnership Occurs when two or more people join together in a business enterprise Company (Plc)  Sells it shares to the general public on the Stock Exchange.
to pursue profit.  The share price changes when there is more or less demand for them.
Advantages of a partnership Disadvantages of a partnership Advantages of a public limited company Disadvantages of a public limited company
 Share workload and discuss ideas.  May disagree with other partners as they have  Can advertise its shares to the general public  Increase media coverage could also be bad for
 Share liability. different ideas. – access to greater number of potential the business if it makes a mistake.
 More sources of finance than a sole trader.  Decisions may be slower due to consultation. investors and raise large sums of money.  Cannot control who buys its shares, so managers
 Share skills as partners can specialise.  Unlimited liability.  Attracts more media coverage, which may find that a competitor buys control of the
 Partners can cover for each other when ill or  Liable for the actions of the other partners and provides a good form of cheap publicity. company and takes it over.
want a holiday. share profits.  Plc are usually thought of as having more  More regulated than a Ltd, it has more things it
28 Deed of Partnership Is an agreement between partners that sets out the rules of the status than Ltd’s and are usually bigger. This must do according to law.
partnership. can impress customers.  Must produce more detailed financial
 How to divide up profits (how much money they put in or how  Investors may be more willing to invest as it information and send it to shareholders – can be
much work they do). is easier to sell shares on later. expensive and gives away information to
 How decisions are made (voting rights). competitors.
 How to value the business if someone wants to leave.  When a Ltd becomes a Plc it brings in external
 How to decide on whether someone else can join. investors, original owners may not agree with
29 Company A company is a business that has its own legal identity. It can own items, views and objectives of new owners
owe money, sue and be sued. Examples are private limited companies 32 Shareholder Is a person or an organisation that owns part of a company. Each
and public limited companies. shareholder owns a ‘share’ of the business.
30 Private Limited  Is owned by its shareholders who when the business is starting out 33 Not-for-profit Are set up to achieve other objectives other than profit, for example a
Company (Ltd) tends to be its founders – although they may eventually bring outside organisations charity may set up to help homeless people or someone might set up a
investors in if more funding is required. youth club.
 Has ltd after its name. They still have to raise funds and invest just like other companies.
 Cannot advertise its shares to the general public, if sold will be done 34 Which is the right The type of ownership will vary depending on the type of business such
privately. form of business? as a new start-up business or a large established business. This will
depend on:
 Can include certain restrictions in its Articles of Association to limit
who the shares can be sold to (family members only).  The business experience they have.
Advantages of a private limited company Disadvantages of a private limited company  Whether they want to share profits.
 The amount of risk they are willing to take.
 Limited liability – can help gain access to  Various legal procedures need to be completed,
funding from investors. such as registering, which take time and money.  What they want to do to protect them from that risk.
 For many customers, a company seems to  A summary of the business’s financial accounts  What investment they want and from who.
have more status than a sole trader. must be produced and be available to the
 If the founders die, the company still exists general public (including competitors)
and whoever owns the shares continues  Accounts must be checked by an independent
with the business. accountant (auditor) which creates an additional
 Managers can be employed to run the day- cost.
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35 Liability Unlimited Limited
Sole Trader Private Limited Company
Partnership Public Limited Company
Investors in a limited company can
only lose what they invest in a
Means the owners are responsible
business, they cannot be forced to
for all of the businesses debts.
sell personal assets to pay off the
business’s debts
36 Aim Is a general goal of a business. The owners may aim to grow the
business or make it more profitable.
37 Objective Is a specific target that is set for the business to achieve. The aim may
be to grow, whereas the objective set from this might be to grow sales
by 25% within 3 years
38 Purpose of Managers will be clear about what they are trying to achieve
Objectives  Helps with decision making and with establishing priorities.
 It helps investors to understand the direction in which the business is
heading – could help with investment when setting up or expanding.
 It provides a target so that everyone can compare actual results with
the planned results to decide how successful the business has been.
 It can motivate everyone connected with the business because they
know what they are trying to do and how they can measure success.
39 Main Objectives  Survival – in the short-run surviving is an achievement, ensuring that
the business’s name is known. You may charge lower prices and make
lower profits, but this could change in the long-run. Important for
when the economy is doing badly.
 Earning a profit (profit maximisation) – normally a long-term
objective as it takes time to build a brand. If none or low profits are
made the owners will take resources out of the business and use
elsewhere. The business must make enough profit to exceed the
opportunity cost of using these resources. How much is enough will
vary with each business.
 Shareholder value – businesses aim to reward shareholders by
generating profits to pay dividends, which are financial rewards paid
on each share the shareholder owns. In addition the managers will
want to run the business well to encourage people to invest which
increases the price of the shares meaning current shareholders own
something more valuable.
 Customer satisfaction – done by providing a better quality service or
a wider range of products than competitors. This should lead to more
profits in the long-run as if customers are happy they are more likely
to return or tell friends about the business. Could increase costs and
result in lower profits in the short-run.
 Market share – measures the sales of one product or business as a
percentage of the total market sales. (Sales of products ÷ total market
sales) x 100. If a business has a larger market share it increases its
influence on the market.
 Growth – managers and owners may want the business to open more
stores, sell more products or increase its revenue. This could be
locally or on a larger scale (nationally or internationally)
 Being ethical – business will want to be seen to be doing the right
thing, for example paying employees reasonable wages, treating their
suppliers and customers with respect and being honest with them
about the state of the business. They will benefit from favourable
media coverage, using the ethical message in its marketing and in
attracting customers, investors and employees. It can however
increase costs by paying more money to employees or sources more
ethical resources.
 Environmental and sustainability targets – want to be seen by
customers to be taking care of the environment in order to attract
more customers. They may set limits on the amount of energy they
use, or limit their carbon footprint, or set recycling targets, or reduce
wastage.
40 Effective Objectives To be effective a target should clearly state:
 What the target is – e.g. to increase profits by 20%
 When it has to be achieved – e.g. to achieve the target within two
years.
 Who is to achieve it – who is in charge of marking sure the target is it.
 How to achieve it – what is and what is not acceptable behaviour.
41 Resources to achieve To be successful and business must set objectives that are achievable
objectives and involve only the resources that are available.
 Time – managers often have many different tasks to complete so they
must feel they have a sufficient amount of time available to focus on
a given target.
 People – does the business have the staff it needs?
 Money – does it have the necessary finance to buy the resources and
materials required?
 Equipment – does it have the machinery and facilities needed to
achieve the target?
42 Changing Objectives Business objectives can change between different businesses for a
number of reasons.
 The size of the business – a small sole trader will initially want to set
an objective of survival, whereas a large business will set targets of
increasing profits or growth. Larger businesses are also open to more
scrutiny so may also set environmental or ethical targets to avoid
media attention.
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  The level of competition – if the market is saturated with lots of
competition then it may difficult to set targets of growth. It may be
more prudent to set a target of customer satisfaction to achieve
growth, or an increase in profits.
 The type of business – some business are not set up to achieve the
Main Objectives such as Not-for-profit organisations.
43 Not-for-profit Are organisations that are set up not to make a profit, Their objectives
Organisations are to benefit the particular cause they were set up to help. They can
operate in the private or public sector.
44 Private Sector Are owned by individuals. E.g. social clubs and charities.
Organisations
45 Public Sector Are owned by the government. E.g. schools and hospitals.
Organisations
46 Using objectives to Only when you know the overall desired result can you judge whether a
measure success business has met its objectives fully, partially or not at all. It is important
to analyse each objective in conjunction with other objectives. By
measuring the success of objectives you can identify likely reasons for
any shortfalls or gains and then take steps to improve or sustain this
next year.
 Survival – are they still in business?
 Earning a profit (profit maximisation) – have they met the target set,
passed it or fallen short?
 Shareholder value – is the business paying dividends and at what
value? Has the share price increased?
 Customer satisfaction – has there been a reduction in complaints or
an increase compliments? Are customers returning or getting new
customers?
 Market share – Has market share increased? Is this due to another
company leaving the market or your business growing and taking
share off of competitors? Has the share increase based on value of
sales or volume of sales?
 Growth – has the opening of new stores affected other objectives
such as profit as the growth is financed? Have you grown, but not to
the size you wanted or not internationally?
 Being ethical – Are you paying employees the living wage are you
similar to competition? Do you treat suppliers as well as other
companies? Do other suppliers want to do business with you?
 Environmental and sustainability targets – are you meeting your
target? Are you falling short, but doing better than competitors, or
exceeding and doing worse than competitors?
47 Stakeholders Are individuals or organisations that affect or are affected by the
activities of a business. The objectives that a business set will be
influenced by its stakeholders. The main stakeholders are:
 Employees
 Owners/Shareholders
 Local Community
 Government
 Suppliers
 Customers
48 The objectives of Sometimes the objectives of stakeholders will overlap with each other,
stakeholders but sometimes they will conflict. It is down to the business to ensure
they get a balance of doing what is right for their stakeholders.
 Employees – secure jobs, higher earnings.
 Owners/Shareholders – higher profits/dividends and share price.
 Local Community – local jobs, minimise environmental impact on the
community (e.g. little pollution or congestion, investment in the
community).
 Government – legal behaviour, taxes paid, growth.
 Suppliers – paid on time, informed of any changes to the business
(e.g. any proposed reduction in output).
 Customers – useful, accurate information on the product, good
service, value for money.
49 How does a business  The success of the business will affect the number of people
have an impact on employed.
stakeholders?  The values of the owners will affect how well treated the employees
are.
 A business will impact the local community through employing local
people, investing in local facilities or through congestion.
 The way in which a business treats is suppliers will affect their
success. Does it pay them on time and at a fair price? Does it build a
positive relationship or force them to compete with each other?
 The success of the business will affect the share price and the
dividends that can be paid to shareholders.
 A business may try to reduce the amount of tax it pays, this will affect
government revenue.
50 How stakeholders Stakeholders can influence a business in many ways.
can influence a  Negotiation – Employees may negotiate for better pay; suppliers may
business demand better terms and conditions.
 Direct Action – Customers can stop buying the products of a business
if they are unhappy with the way it behaves. Employees can go on
strike and refuse to work if they do not get what they want.
 Refusal to Co-operate – Local councils can refuse to co-operate with a
business if they do not like its behaviour. E.g. they could refuse
planning permission. Employees could resist any changes that owners
suggest and could show they are unhappy by not working hard.
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  Voting – the owners/shareholders of a business can make their views
clear and can votes on what the business should do next. E.g. 2 out of
3 owners could outvote the other when deciding what should be
done.
51 Dealing with A business may want to think about:
Stakeholders  How it communicates with stakeholders – Does it need to keep them
informed? How does it keep them informed?
 Whether it should involve different stakeholders – it may want to
hold meeting with different stakeholders to gather opinions
52 Why is location  Costs – the amount to be paid in rent or to buy a premises varies
important? according to location. The costs of facilities can affect the level of
profit a business makes.
 Sales – location may affect whether or not the business gets
customers.
 Image – for some products where they are produced can have an
important impact on their image. E.g. A wine shop from Bradford may
not sell as well a gift shop in a tourist village.
53 Factors Influencing There will be many factors that influence the location of a business and
Location these will vary depending on the type and size of the business, and of
which factors the business would consider the most important to them.
 The type of business – a web design business could set up from
home, whereas a shop needs to be close to potential customers.
Generally speaking, factories are more concerned about supplies and
transport systems, whereas shops are more interested in being close
to their customers.
 The proximity to the market – a business will want to know where its
customers are located and ensure that it can reach them easily. This is
more important for some business. E.g. a comparison website would
not need to be near its customers. However, a service business
(hairdressers) will need to be close to its customers.
 Competitors – in some cases a business will not want to be close to it
customers, e.g. petrol stations. However, some businesses will want
to be located close to competition, such as a new business wanting to
take competition away from others, or a restaurant wanting to be
located in an area known for its good eating places.
 Availability of raw materials – some businesses rely on raw materials.
Being close to them could reduce the cost of transporting them or
ensure that the products are fresh e.g. a dairy business or a fish
business.
 Availability and cost of labour – some businesses what highly skilled
and able individuals. These can often be recruited from the best
universities, so businesses locate close to these and make good links
with them. Some business located where the labour is cheaper in
order to keep costs down.
 Transport links – businesses aiming to export will try to locate close
to an airport or port so they can transport goods easily and reduce
costs. If a business wants to operate in an expensive area, but cannot
afford the costs, they may locate close by, but where there are good
rail or road links.
 Technology – businesses can now operate from many locations due
to the internet and mobile communications. This means a business
can choose a cheaper location to keeps its costs down.
 Costs – all location decisions tend to be affected by the overall costs
and the finance available to the business. Businesses may start their
business in a cheaper location, less effective location, but then move
once the business becomes more establishes. A business will often
compare the costs of the location with the potential revenue that it
can earn. E.g. higher-cost location could actually bring in more profit.
54 Overseas Location Some businesses will have an objective to expand overseas. There are
many advantages and disadvantages that a business could experience.
Advantages of overseas location Disadvantages of overseas location
 Cheaper Labour – wages in other countries  There may be different rules and regulations in
(China, India) are much lower than the UK. other countries – these could affect how you
 Access to resource that are not easily treat the labour force, or how you are allowed
available in the UK – e.g. growing bananas is to advertise your products and what safety tests
a lot easier in South America that in England. must be passed. It could be expensive to change
 Financial incentives from foreign what you currently do.
governments – some governments are keen  Customers may have different tastes – products
to attract foreign businesses to their country may need to be differentiated for the local
so offer money or lower taxes. market. This could be expensive.
 Avoids protectionist measures by foreign  Language barriers
governments – some governments want to
help their own firms to protect them from
 Transport costs
overseas competition. This can be done
through tariffs or quotas. By locating in that  Bad publicty from locating
country you avoid these.  Broad – uk job losses
 The market overseas may be growing fast –  If they move to low-wage
home markets could have slow growth,
 Countries could be seen as unethical
locating overseas could help with expansion.
 Customers may prefer made in the
uk
55 Protectionist Are policies that governments use to protect their own businesses
Measures against foreign competition.
56 Tariff Is a tax on foreign goods imported into a country
57 Quota Is a limit on the number of foreign goods imported into a country.
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58 Business Plan Is a document setting out what a business does and what it hopes to
achieve in the future.
59 Business Planning Is the process of producing a business plan
60 The purpose of  Help set up the business successfully – establishing a new business
business planning involves lots of decisions and often the person making them is
inexperienced. By planning, entrepreneurs have to think ahead and
gather data. This helps them assess the risk of various decisions and
hopefully make better decisions.
 Raise finance – a business plan is useful to show to investors as they
would want to see what the managers intended to do with the money
that is to be invested. They would want to understand why the
managers think the business would succeed.
 Set objectives – a plan will set out what the business wants to
achieve. This will help provide a clear target for everyone in the
business and increase motivate and help with decisions as everyone
knows what they are trying to achieve.
 Co-ordinate actions – a plan will set out how an objective is going to
be achieved, what resources will be required, what the time frame is,
what the targets for different parts of the business are. The plan will
therefore co-ordinate the various activities within the different parts
of the business.
61 The main sections of  Background information on the founders and investors and their
a business plan previous experience.
 An analysis of the market and the firms’ expected position within it;
this should include a detailed analysis of the customers that will be
targeted.
 The firms’ objectives
 Details of the price it will set and expected sales.
 An explanation of how the business will compete against its rivals –
how it will be competitive, and what makes it better that the
competition.
 An analysis of the financial position of the business, including
forecasts of profits and cash flow.
62 Problems of Business  Uncertainty – it is not always easy to look ahead and predict what is
Planning going to happen in a market or to estimate future sales figures with
any degree of accuracy. Lots of predictions that are made in the plan
could change which makes the plans out of date.
 Lack of experience – people starting their own business may not have
the experience to compile a sufficient business plan or plan ahead
effectively. Bigger businesses can use experts to produce business
plans and consult with new businesses may not be able to afford this.
 Change – business plans need to regularly reviewed and updated
which can take time and money. This can prevent the business from
focusing on running the business if they lack the sufficient resources
to regularly review and update the business plan.
63 Reduce the Risk of To reduce the risk of business plans going wrong, businesses can
Business Planning  Research the market thoroughly
 Talk to experts and consultants (if they can afford it)
 Plan for a variety of possible outcomes
 Regularly review and update the plan so that it remains relevant and
any problems are spotted quickly.
Not all the risks can be removed but they can be reduced or at least
prepared for and better planning helps do this.
64 Variable Costs Are costs that change with output. E.g. if a café produces more
sandwiches, it will need more bread. Bread is therefore the variable
cost.
65 Fixed Costs Are costs that do not change with output. E.g. the rent of a building will
be fixed for a given period. The rent will not change regardless of how
much is being produced. This does not mean that fixed costs never
increase, but they do not change with output.
66 Total Costs Fixed costs + variable costs
67 Revenue Is the income that a firm receives from selling its good or services. It is
also referred to as ‘turnover’ it is measured by
Number of units sold X Price
E.g. if 200 units of a product are sold at £5 the revenue would be
200 x £5 = £1,000 (it is important to include the £ to get full marks)
68 Profit and Loss Revenue – total costs – if the costs are greater than the revenue this
will result in a loss for the business. It is often measured over a given
period, normally a year. However, it could be separated for each
individual project.
69 Business expansion Is a common objective of most established businesses and occurs when
the firms gets bigger.
70 Measuring the Size of  Value of sales – is also called revenue or turnover. The bigger the
a Business turnover, the bigger the business. It could also increase the firms’
market share.
 Value of the business – can be measured by calculating the value of
the businesses assets (what it owns) minus its liabilities (what it
owes). Another way is to calculate the value of its shares. This is
called market capitalisation.
 Number of employees – some businesses do not sell their products
(e.g. NHS) these will be measured using the number of employees.
71 Market Capitalisation Measures the value of all company’s shares.
Market price of a share x the number of shares.
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72 Methods of A business may expand through internal (organic growth) by selling facilities.
Expansion mores of its own products or through external growth (inorganic  Does not have the finances to expand and does not want to miss a
growth, integration) by joining with another business. market opportunity.
73 Internal Growth Can be done in several ways. Franchising, opening new stores, e- They must be careful to control the quality and it may cost more than
(Organic) commerce or outsourcing. Internal growth tends to be slower that producing the items themselves in the long run.
external growth, but may be more manageable. Joining with a new 80 External Growth Occurs when two or more firms join together to become one. This is fast
business, changes the size of the business suddenly with new staff and (Integration) paced growth and rapidly increases the businesses market share.
different ways of doing things. (Inorganic)
74 Franchise Occurs when a franchisor sells the rights to its products to a franchisee; 81 Merger Occurs when two or more businesses join together to form a new
this is usually in return for a fee and percentage of turnover. business.
Advantages of selling a franchise Disadvantages of selling a franchise 82 Takeover Occurs when one business buys control of another business.
 Can grow quickly.  Lost some control. 83 Types of Integration  Horizontal Integration – occurs when one firm joins with another firm
 Franchisee provides some of the finance.  Danger of problems with one franchisee at the same stage of production – this allows the business to increase
 Franchisees motivated as they are running affecting the whole brand. its market share and influence on the market.
their own business.  Have to share profits.  Vertical Backward Integration – occurs when a firm joins with one of
Advantages of buying a franchise Disadvantages of buying a franchise its suppliers. This can ensure good and reliable supply of raw
 Established brand.  Have to share profits. materials for production.
 Access to training and supplies.  May have to work within franchisors guidelines.  Vertical Forward Integration – occurs when firm joins with of its
 Share marketing costs.  Have to contribute to group marketing. distributors. This can ensure that it can control the selling of its
 Learn from other franchises.  Sales may suffer if another franchisee gets a bad products.
 Tried and tested business – established reputation.  Conglomerate Integration – occurs when one firms joins together
customer base. with another firm in a different type of industry, e.g. Rentokil doing
75 Franchisee Buys a franchise usually in return for a fee and percentage of turnover pest control, parcel delivery and security. This spreads the risk of the
76 Franchisor Sells a franchise usually in return for a fee and percentage of turnover business over different industries if one market was to fail.
77 New Stores This is where the business would use the same formatting and open up 84 Advantages of  It can lead to economies of scale, which are benefits that come with a
the same business in another location. This is slow method of Business Expansion larger size.
expansion, but allows the business to retain full control.  It can lead to more power in the market. E.g. retailers are more likely
78 E-Commerce Is the act of buying or selling a product using an electronic system such to be more willing to stock the products of a well-known brand.
as the internet.  Big firms have more status. This can make it easier to launch new
Advantages of e-commerce Disadvantages of e-commerce products
 Cheaper locations can be sort, as no shop  Cost of setting up a sufficient website to deal  Big firms are more expensive so it makes it more difficult to takeover,
front is needed – could use own home. with e-commerce. so those in charge feel more secure.
 Opens up to a larger target market (global)  Competition is now global, so can push prices  Rewards for staff are often linked to the size of the business, so
 Employment costs could be cheaper as less down. everyone may support the success of the business.
staff may be required.  If you have a physical product, you have to 
 Increase in “Click and Collect” makes it consider the distribution of the product and the 85 Economies of Scale Occur when a business’s unit costs of production fall as its output rises
easier to distribute products. cost of it. and the business expands. There are different forms of economies of
 Can add another channel to access the  Online sales could affect the sales in your scale.
market if you already have a physical store. physical store if you have one.
79 Outsourcing Occurs when a business uses another business to produce for it. Used  Purchasing – as you get bigger you produce more and therefore need
when: more raw materials. Suppliers administration costs are reduced per
 A business does not have the time to produce the products unit on larger orders as they only have to process an order once
instead of a lot of times for smaller orders.
 Does not what to take the risk of expanding its own production
9
  Technical – Bigger firms may be able to purchase specialist
equipment that makes production, cheaper and more efficient such
as a production line. They may not be able to justify this as a smaller
business.
 Specialist Managers – as a small business the entrepreneur would
normally fulfil all roles in the business. A larger business could employ
specialist for each role, such as a marketing manager or a finance
director.
 Financial – larger firms can get more favourable terms when trying to
borrow money.
86 Disadvantages of  Decision making becomes slower as there can be more people to
Business Expansion consult due to more levels in the hierarchy. This could result in the
messaged becoming distorted as they pass through the chains of
communication.
 Employees may feel isolated and no longer feel special or important
to the organisation. This may mean they become demotivated.
 Controlling and co-ordinating the business that has many customers
and products in many locations can be difficult and may be less
efficient.
87 Diseconomies of Occur when the cost per unit increases as a business expands.
Scale
88 Unit cost Measures the cost of a unit. These are also called average costs
Unit cost = total costs ÷ output
89 Economies and The costs of a business cannot continue to fall forever. At some stage in
Diseconomies of the process the reductions in unit costs will decrease and eventually
Scale lead to an increase in unit cost.

Output Total Unit Cost = Total costs ÷

(units) Costs Output (£)
(£)
100 1,000 1,000 ÷ 100 = 10 Economies of Scale
200 1,600 1,600 ÷ 200 = 8
300 2,100 2,100 ÷ 300 = 7
400 2,400 2,400 ÷ 400 = 6
500 4,000 4,000 ÷ 500 = 8 Diseconomies of
Scale

90 Expanding Abroad This enables the business to target more customers and potentially sell
more. However new markets brings new challenges.
 The law and regulations facing businesses may differ.
 The existing businesses may resist new entrants into the market.
 Customers buying habits and expectations may be different.

10
2) Influences on Business (papers one & two)
1 Information and Is the computing and communications systems that a business might
Communications use to exchange information with stakeholders. E.g. Tablets,
Technology (ICT) smartphones, PC’s cloud computing networks allowing more
information to be exchanged quickly.
2 Types of information There will be various types of information that need to be exchanged
exchanged with different stakeholders and the type and importance will influence
the way in which this is done.
 Prices and product details (customers)
 Resources required (suppliers)
 Customer needs and complaints
 Ideas and suggestions (employees)
3 Websites Uses to promote and sell a business’s products and to collect
information from customers and other stakeholders.
4 Intranets Are communication networks which can only be accessed by an
organisation’s employees. These are often operated by many large
companies.
5 Extranets Are similar to intranets but can also be accessed by other organisations
such as suppliers. Used to communicate with each other, to monitor
production and the quality of goods and services, and to place orders
with suppliers. Can provide access to many other types of information
and can help cut down on the amount of paperwork.
6 The Impact of ICT on Rapid developments in technology have led to changes in the ways in
Business Activities which ICT is used, with implications for the way businesses operate.
The location of employees – can now work more flexibly from home or
from a range of different offices, or factories. In addition many
businesses can now locate elements of their business overseas such as
call centres to reduce costs.
Some of these jobs are now being done by computers to reduce the
amount of employees.
Collecting, storing and analysing information – businesses no longer
have to own and manage physical servers on their own property. Many
businesses now operate using Cloud Computing. These services can
enable a business to analyse the information they store quickly and
accurately e.g. identify changes in consumer behaviour
7 Cloud Computing Is a general term for the delivery of specialist computing services, such
as storage of very large amounts of data provided by businesses using
the internet.
8 Changes in ICT Has led to important and large changes in two aspects of business
activity. E-Commerce and Digital Communication.
9 E-Commerce Is the act of buying or selling a product using an electronic system such
as the internet.
 Businesses selling to customers or to other businesses using their
websites.
 Individuals selling to other people directly through websites such as
eBay or Amazon.
E-Commerce can provide much of a business’s growth as it offers access
to wider markets. A business must operate a good quality website with
a payment system (e.g. PayPal) and make it products accessible to
customers throughout the world.
10 M-Commerce Is the buying and selling of products through wireless handheld devices
such as smartphones.
11 Digital Is the transmission of information electronically between computing
Communication devices.
 Email/Texts
 Webchat - Is a simple means of communications in real time using
only web browsers (Firefox, Chrome Internet Explorer)
 Teleconferencing and video-conferencing – special software can be
downloaded to allow businesses to connect with people in lots of
different locations all at once for meetings.
 Apps (applications) - Are pieces of software designed for a specific
purpose and for use on smartphones and tablets (Skype, Whatsapp)
 Social Media - Are methods of online communication such as
websites and applications. They share information and help to
develop social and professional contacts.
12 Digital Digital communication has changed the way businesses communicate
Communication with with their stakeholders.
Stakeholders  Customers and potential customers – businesses now have far more
contact with customers and potential customers than in the past. Lots
of communication can now be done through social media, such as
asking questions or making complaints to promoting the products of
the business particularly for small businesses with limited resources.
Companies now employee people with specific responsibility for their
online presence. Amazon has gone as far as reducing labour by using
the Dash instant order buttons.
 Suppliers and employees – many business operate systems to
automatically re-order supplies, this can reduce storage costs, but
also ensure there are sufficient supplies. Technology can also send
communications to employees or managers such as sensors to detect
the number of customers, this can then be used to predict future
trends and ensure sufficient staff are available.
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  Other stakeholders – PayPal and Intel now hold online shareholder
meetings, meaning the attendance is now greatly improved resulting
in the opinions of more shareholders.
13 Ethics Refers to whether a business’s decisions are thought to be morally right
or wrong. An ethical decision is made on the basis of what is judged to
be morally right.
14 Ethical Behaviour Requires businesses to act in ways that stakeholders consider to be both
fair and honest.
15 Profit Measures the difference between the values of a business’s revenue
and its total costs.
16 Questions asked by  Are suppliers (especially small businesses) paid on time, or is payment
stakeholders delayed?
 Are employees treated fairly? Are they paid well? Is child labour used
in overseas factories?
 Are consumers aware of the materials used to make products?
 Is the business’s advertising truthful and fair? Are its products
harmful?
Even though the business is acting legally, some stakeholders will still
feel the business is being unethical. E.g. paying managers, high salaries
whilst other employees are only on the living wage.
17 How can a business Businesses can behave ethically by considering the whole community
behave ethically? and not just profits when making decisions. Businesses can behave
ethically in each of the four functional areas.
 Ethical Marketing – behave honestly, fairly and responsibly in all
marketing activities. E.g. avoid targeting children with advertisements
for products with potentially harmful side-effects, such as junk food.
 Ethical Business Operations – managers may choose not to buy
resources from suppliers that are involved in unethical practices such
as child labour or choose to manufacture products that can be
recycled.
 Ethical Human Resources – not using zero hour contracts, offering
employees the opportunity of high-quality training, despite the cost,
paying the living wage.
 Ethical Finance – investing in the local community or pay employees
to undertake charitable work during normal work hours. Paying the
correct amount of tax
18 Zero Hour Contracts Using zero hour contracts means employees do not know how many
hours, if any, they will be asked to work each week.
19 Trade-off between Behaving ethically, may mean that profits will decline, at least in the
Ethics and Profits. short run. Ethical decisions often make it more expensive to produce
and sell goods and services. For instance:
 Using environmentally friendly resources or fair trade products, which
are more costly.
 Providing employees with high-quality training (after which they
make take a job elsewhere).
 Offering lower-priced products to certain groups such as pensioners.
 Acting in a socially responsible way by taking into account the needs
of all stakeholders and not just shareholders.
Having a reputation as an ethical business can help a business to attract
large numbers of customers, despite relatively high prices. By paying
good wages you can attract better quality employees leading to
improved quality.
Businesses that are seen to be unethical can suffer from bad publicity,
leading to a damaged reputation, reducing its sales and profits.
20 Fair trade Products Are those for which customers pay higher prices and offer better trading
terms, such as payments with orders. The aim is to improve the living
standards of people in poorer countries where the products are
produced.
21 Social Responsibility Is an approach to managing businesses in which the interests of all
groups in society are taken into account when making decisions.
22 The effects of  Traffic congestion – with increased numbers of vehicles on the road,
business activity on this results in externals costs through the increased CO2. It also results
the environment. in additional costs for business as they have increased fuel costs or
costs due to delays in production or deliveries.
 Air and noise pollution – production in factories generates noise and
air pollution resulting in problems for local animals.
23 How businesses and  Traffic congestion – businesses are seeking to produce cars that
consumers can show produce fewer emissions or choose transport methods that do not
environmental cause any pollution.
responsibility.  Air and noise pollution – business have targets they have to meet
and are fined if they failed to do so.
 Recycling – business are increasingly designing products that can be
recused or recycled. E.g. plastic bottles, paper or metal. Building are
now dismantled instead of demolished so bricks can be reused.
 Disposing of waste – businesses aim to reduce the amounts of waste
that result from production and consumption of their products. This
could involve reduced packaging, or products that last longer, so
fewer are produced.
 Sustainability – businesses can produce using sustainable methods
and consumers can support this by choosing to buy from producers to
produce this way.
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24 Sustainability  The use of scarce resources – many resources are scarce or non-
renewable, such as coal, oil or gas. This means that is limited. Firms
are now looking at using renewable materials such as wind or solar
power.
 Global warming – is the gradual heating of Earth’s surface, oceans
and atmosphere. Governments have emission targets that must be
met and they pass these onto businesses and fine them if they are
unable to.
There is also a trade-off between a business acting sustainably and
ensuring that they make a profit. They can experience the same benefits
and drawbacks as in the trade-off with being ethical and profits.
25 External costs of Are costs which arise when a business’s activities result in harmful
Production effects on other people not directly involved in production e.g. local
residents.
26 Consumers decisions It is easy to think that businesses are solely responsible for
and the environment environmentally responsible methods of production. Consumers can
also help protect the environment by:
 Recycling products at home to reduce the amount of waste they
produce.
 Buying environmentally friendly products whenever possible. This
encourages businesses to produce more of them and less of others.
 Complaining to businesses (maybe on social media) whenever they
are seen to cause damage to the environment.
Advantages of environmentally friendly and Disadvantages of environmentally friendly and
ethical policies ethical policies
 Can result in some positive publicity and can  Can increase costs, such as employment costs or
be used in advertising. cost of raw materials. (it is cheaper to get new
 Can charge higher prices for products and than recycled)
services as customers are more willing to do  Must ensure that all aspects of the business are
business with you. ethical and environmentally friendly to avoid
 Can win more customers if you are more damaging publicity.
ethical and environmentally friendly than
competitors.
27 The economy Is made up of millions of individual consumers, many thousands of
businesses and governments. All take decisions on what to buy and
produce.
28 Economic climate Is a term that refers to the state of the economy. This term considers
whether an economy is:
 Producing a greater or smaller quantity of goods and services.
 Providing consumers with falling or rising incomes.
 Experiencing a rise or fall in the amount that consumers can spend on
goods and services.
 Offering more or fewer jobs for people.
29 An improving Rising levels of employment, production, consumer incomes and
economic climate spending.
30 A weakening Falling levels of employment, production, consumer incomes and
economic climate spending.
31 Interest rates and the Changes in interest rates can affect the economic climate of a country.
economic climate They have this impact because they affect decisions taken by both
consumers and businesses.
32 Interest rates Refer to the cost of borrowing money or the reward for saving money,
expressed as a percentage.
33 Consumers and A change in interest rates will have two broad effects on consumers’
changes in interest decisions. The amount they want to save and spend.
rates
 Saving by consumers – a fall in interest rates will lead to some
consumers deciding not to save as the interest they will receive will
have been reduced.
 Spending by consumers – as well as spending their savings,
consumers may also be more willing to borrow money to buy
expensive items such as a house or car. This is because the cost of
borrowing is cheaper due to lower interest repayments.
A rise in interest rates will have the opposite effects.
34 Businesses and Some businesses rely heavily on borrowed money to finance their
changes in interest activities. Sometimes this is for a short period to pay for raw materials
rates or for longer periods to pay for new factories. Borrowing large amounts
of money over long periods means businesses can be affected
significantly buy interest rate changes.
 Rising interest rates – businesses may face large increases in the
amount of interest they repay on existing loans. This could increase it
costs and reduce profits. It could result in a business being unable to
repay its loans and probably stop trading.
 Falling interest rates – this would reduce the cost of borrowing and
help a business to improve its profits. This is not favourable however,
for businesses with large amounts of savings. Businesses are likely to
increase spending and expansion when interest rates are low.
Businesses can protect themselves by negotiating loans with fixed rates
of interest. However, these are likely to be higher rates of interest that
the current market rate.
35 Overdraft Is a flexible loan which businesses can use, whenever necessary, up to
an agreed limit.
13
36 Levels of If the economic climate is strong and improving, there is likely to be a
employment rising level of employment as more workers are needed. Wages may
also rise. On the other hand, during a period in which the economic
climate is weakening, employment levels and wages may fall.
The level of employment can be measured by calculating the percentage
of people aged 16-64 in employment.
Increases in the level of employment have effects on businesses.
 The possibility of higher sales – if more people have jobs, it is likely
consumer spending will go up. Also this could represent an increase in
wages meaning that the spending power of consumers is greater so
can buy more.
 Increased employment costs – labour can become scarce, resulting in
higher wages especially for skilled labour as businesses compete to
employ the remaining available labour.
37 Consumer spending Refers to the value of goods and services bought by consumers over a
time period usually a month or a year.
38 The effects on Business that produce or sell essential products such as basic foods, do
business of changes not experience larges falls in sales when consumers incomes fall. Equally
in consumer they do not benefit from large increases when consumers incomes rise.
spending
Business that produce or sell non-essential products such as luxury
holidays or organic foods do experience large falls in sales when
consumers incomes fall. Generally when incomes increase they benefit
from increases in sales.
39 Income elasticity Determines how sensitive products are to changes in consumers
incomes. E.g. a fall in income could lead to a fall in demand for luxury
holidays or a rise in demand for supermarket own brand products.
Sensitive
Luxury travel, fine wines, new kitchens and bathrooms, gym
memberships and sports cars.
Non-sensitive
Basic foods (bread milk eggs), tobaccos products (addiction) buss travel,
petrol and tap water.
40 Globalisation Is the trend for markets to become worldwide in scope. This has
changed the ways in which many businesses operate:
 The volume of trade between countries has increased.
 People have moved overseas to live and work and money have
flowed between different countries.
 Multinational companies (MNCs) have grown in importance and have
supplied products to markets across the world.
41 Why has the pace of  Incomes have risen, allowing consumers in many countries to buy
globalisation goods and services produced by MNCs.
increased  The cost of transporting products has fallen sharply, making it
impossible to move raw materials and finished goods around the
world.
 Electronic communications have allowed even small businesses to sell
products to global markets.
42 Benefits of  Rapid growth – growing quickly has allowed businesses to benefit
globalisation from economies of scale making unit costs cheaper.
 Inward investment – countries benefit from investment from other
governments, businesses and individuals such as buy new factories or
helping finance transport systems or energy supplies.
 Cheaper resources – due to cheaper transportation, resources can be
obtained from the location they are cheaper, such as coal is now
imported into the UK as it is cheaper than mining for it. This means
that it can help increase businesses profits and make them more price
competitive.
43 Drawbacks of  Fierce competition – this can place increased pressure on UK
globalisation businesses to sell at lower prices. This makes it difficult for UK
businesses to compete with businesses who benefit from lower
labour costs. This can affect the level of employment.
 New competitors – due to globalisation business find it more difficult
to increased or even maintain, their market shares, which results in
the influence they can have diminishing.
 Threat of takeover – buying a UK business is a quick way for a MNC to
acquire a well-known brand and gain a foothold in the UK market.
This can result in UK factories closing as production is moved to areas
with lower labour costs. Former suppliers are also affected.
44 How UK businesses UK business can use two major approaches to allow them to compete
compete internationally.
internationally
 Improving the design of their products – this can give the image that
their products are superior to those produced by competitors. A
business can charge a higher price if consumers prefer the design of
their products. Alternatively, a business may seek to maximise sales
by offering a product with a better design at a similar price to rival
competitors.
 Quality and price – a high quality product does not need to be
expensive or highly sophisticated, it merely has to meet the
consumer’s needs. By ensuring that quality matches price a business
is more likely to succeed in competitive international markets.
45 Quality Is the extent to which a consumer is satisfied with a product.
46 Price Is the amount a business asks a customer to pay for a single product.
14
47 Exchange rate An exchange rate is the price of one currency expressed in terms of  Other employment laws – pregnant employees entitled to 52 weeks
another. leave, with the job kept open to return to. Legal right to paid holiday
up to 5.6 weeks. Limited to work 48 hours per week unless agreed to
£1 = $1.31 or £1 = €1.12
work more. Employee’s right to choose whether to belong to a trade
48 Effects of a rise in the If the exchange rate of the pound rises against other currencies, it
union. Have to be given a contract of employment. Can have time off
exchange rate means that fewer pounds are needed to purchase goods and services
work such as for when a child is ill.
from other countries. This makes imports cheaper. At the same time it
52 How business are Benefits
makes UK exports more expensive and therefore sales are likely to
affected employment  Workers could be motivated by higher rates of pay or having their
decline.
laws employee rights met and could lead to more efficient workforce –
49 Effects of a fall in the If the exchange rate of the pound falls against other currencies, it means
profit could therefore increase.
exchange rate that more pounds are needed to purchase goods and services from
 Can ensure that they employ the best candidate regardless of age,
other countries. This makes imports more expensive. At the same time
gender, disability.
it makes UK exports cheaper, and therefore sales are likely to increase.
 Allowing staff to meet with trade unions could create good
It also means that business that import raw materials from other
relationships, meaning disputes could be reduced.
countries could have reduce profits.
Drawbacks
 Minimum (living) wage increases can impact on profit levels as
employment costs increase.
 Employers could decide to employ less people leading to reductions
in output.
 When recruiting staff, firm may have to pay HR specialists to ensure
The exchange Example Prices of UK exports Prices of imported that they do not break any rules.
rate (in pounds) overseas (in foreign products in the UK (in  Meeting employees’ rights can lead to additional costs, such as
currencies) pounds) maternity pay (although it can be reclaimed)
Rises £1 originally worth $1.20: Increases in prices Fall in prices 53 Health and safety law The health and Safety at Work Act 1974, states that employers must
increases in value to be “ensure that they safeguard all their ‘employees’ health, safety and
worth $1.50 welfare at work” it covers main business activities.
Falls £1 originally worth $1.20 Fall in prices Increase in prices
decreases in value to be  The installation and maintenance of safety equipment
worth $1.05  The maintenance of workplace temperatures
 Giving employees sufficient breaks during the working day
50 Legislation Is a set of rules that governs the way society operates, it is another term  Providing protection against dangerous substances
for “laws” you do not need to quote the names of these laws or the  Fitting guard on dangerous machinery
dates they were introduced., but you should aim to understand how  Writing and displaying a safety policy
they affect businesses.
51 Employment law  Minimum (living) wage – workers over 25 must receive the living The act also requires employees to follow all health and safety
wage. Workers under 25 must receive the national minimum wage for procedures and to take care of their own and others’ safety.
their age group. The same rule apply for both part-time and full-time
workers or temporary workers.
 Equality Act 2010 – states that employees cannot be discriminated
against in the work place based on: age, disability, race, gender (or
reassignment), marriage or civil partnership, religion, pregnancy,
sexual orientation.

15
54 How business are Benefits  Safety of products – states what can be in certain products e.g. such
affected by health  Avoid having to pay large fines for conforming. as food. Prevent the selling of unsafe products and makes the
and safety laws  Can help motivate employees. business liable for injury caused by their products.
57 How business are Benefits
Drawbacks affected by consumer  Protection offered to consumers can make them more willing to
 Increase costs as business are likely to have to invest in training in laws purchase expensive and complex products such as cars.
health and safety matters, or in installing health and safety  Encourage business to produce goods that are safe, fit for purpose
equipment. and as described. Means that businesses compete on a level playing
 It can be time consuming to abide by these laws, taking a business field.
away from core business activities.
55 Consumer law Business can treat their customers unfairly in a number of ways: Drawbacks
 By selling goods and services that are not as described – e.g. incorrect  Increase business’ costs of production, such as for imposing standards
quantities stated on the packet. or requiring businesses to deliver products promptly.
 By selling products that are unsafe – e.g. toys containing unsafe
chemicals such as lead.
 By selling products that do not work properly or at unfair prices. 58 What is a market? A market exists where there are buyers and sellers that come together
 By selling information about consumers to other business without to exchange goods and services and to set prices for goods and services.
their permission.
Markets can be geographical such as the Trafford Centre or online such
Consumer Rights Act, 2015 provides consumers with clear rights and as music.
protection when buying goods and services. 59 What is competition? Competition exists when more than on business is attempting to attract
the same customers.
The Consumer Rights Act covers:
60 Different levels of Businesses face different numbers of competitors, some businesses
 Product quality – must be of a satisfactory quality (not broken), fit for competition trade in markets with many competitors other face few rivals and then
purpose and as described. Consumers have the right to reject very few face no competition.
products that do not meet these standards within a reasonable time.
 Returning goods
Number of A large number of small A few larger firms A single business (known
 Repairs and replacements firms (or possibly medium- as a monopoly)
 Delivery rights – with many product now been delivered, consumers sized businesses)
are protected against products going missing and late delivery. Examples Indian restaurants Mobile phone Water supply
Painters and decorators manufacturers, Railways between some
Finally the Consumer Rights Act protects consumers against unfair terms Estate agents Supermarkets destinations
in contracts.
Products Products can be similar Products will be Only one main product
56 Examples of  Labelling of products – labels must state what ingredients the or different from each different or advertised is available
consumer law packaged food contains. Weights and measures must be on the other to appear as if they are
package and be correct. It is illegal to give consumers incorrect different
information on packaging and labels. Prices Generally low, especially Can be high, especially if Prices can be high as
 Buying products using loans – laws stops businesses charging very if the products are firms compete in other little or no competition
high rates of interest to consumers if they take out a loan to purchase similar ways
expensive products. It also allows them a week to change their minds. Other means of Advertising Advertising These business face little
 Using information correctly – prevents people looking at information competing High-quality service Launching new products or no direct competition
on computers they have no right to read. Information must be stored Convenient locations
securely and avoid any theft or loss. It prevents personal details being
sold without the consumer’s permission.
16
61 The risks faced by Internal risks 65 Entrepreneurs and Entrepreneurs start businesses for many reasons, including desire to be
businesses  A business’s employees may refuse to work – known as going on risks their own boss, the need to have work, or to earn more money.
strike.
 A business may suffer fire or theft (physical or through IT) Entrepreneurs have to be able to manage risks so planning ahead and
 Suffer low profits due to bad publicity producing a business plan.
 Lose most talented employees to competitors
They take the risk in return for a reward (profit)
External risks
 New competitors could enter the market
 Natural disasters such as floods and earthquakes – these could cause
a business to cease trading
 Governments can pass laws that impact directly on businesses –
national living wage
62 How businesses can Prepare business plans – identifies what might happen so that the
minimise risks business can plan against it
Invest in training – this can mean that employees are ready to deal with
whatever happens, such as dealing with dissatisfied customers, or an IT
security alert.
Using experts and consultants – experts can help identify the risks and
have specialist knowledge to plan for them or employ a specialist HR
consultant to improve the reputation to avoid falling sales.
Selling in different marks – operating a policy of diversification means a
business can reduce the risk of consumer’s fashions choices changing or
new competitors entering.
63 Diversification Occurs when a business starts selling new products in new markets.

64 Why all businesses Economic uncertainty – with businesses unable to forecast when issues
face uncertainty such as a recession occur, the impact when one happens can have huge
implications for a business. With the Brexit vote, businesses are unsure
of what agreement will be made, such as on import and export taxes or
on who they can employ.

Competitors and uncertainty – a competitor might cut their prices

significantly, introduce new products or attempt to buy their rivals. It is
difficult to be prepared to respond to so many challenges.

Social changes and uncertainty – changes in society are not always easy
to predict. Changes in tastes and fashions can have major implications
for a wide range of businesses. They make it difficult to estimate future
sales accurately. E.g. Coca-Cola has reduced sales as consumers become
more aware of the dangers of sugary products.

17
3) Business Operations (paper one)
1 Production Refers to all the activities in managing the transformation process.
management
2 Production Is the process of changing inputs such as labour services into goods and
services that can be sold. Production does not just relate to
manufacturing, but also to supplying services.
3 Job production Is a method of production in which a product is supplied to meet the
exact requirements of a customer. E.g.
 Garden design – garden will be unique to that customer and their
needs.
 Tailors – suits or wedding dresses will be made to each individual
customer’s size and choice of material.
 Personal trainers – the trainer will provide a diet and exercise
programme to suit the individual customer.
 Restaurants – meals are prepared and cooked to meet the customer’s
specific needs such as how they want their steak cooked.
Advantages of Job Production Disadvantages of Job Production
 Helps smaller firms to gain an advantage over  Labour costs can be high as skilled workers are
usually needed and training will be required
larger firms.
 Production costs can be high. It is often a slow
 Can be the best approach when it is not
possible to use technology process as the business must plan and design
 One-off products or services allow customers’ each project individually
special requirements to be met.
 High prices can often be charged as customers
may be prepared to pay extra for specially
designed products
 It is a flexible production process – no two
products or services need to be the same
4 Flow production Occurs when an item moves continuously from one stage of the
production process to another. E.g.
 Car manufacturing – cars pass along the conveyor belt as each
element of the car is fitted.
 Bottle plant filling – each bottle is cleaned, cap fitted, a label is added
and it moves on to be packed without stopping.
Advantages of Flow Production Disadvantages of Flow Production
 Low cost of each unit produced due to high  Set-up costs of buying the equipment are high,
level of output and efficiency. especially if computer-controlled robots are to
 High amount of automation with computer- be used.
controlled machinery produced very  Production problems can be costly as the whole
consistent, high standard of quality products. production line may have to be stopped.
 Less need to hold stocks – storage costs are  Worker motivation can be low because they are
lower and less likely that raw materials will be not involved in make a complete product and
damaged doing one repetitive task can become boring as
 Division of labour – the complete job is split up a result of specialisation and division of labour.
into a large number of small tasks – enables This can lead to absenteeism and people leaving
each job to be done quickly. which can be expensive and disruptive for a
 Specialisation – workers are often specialists business.
in one area of production  The basic standardised product cannot be
changed without costly and time-consuming
changes in machinery. (although advances in
technology make it slightly possible to change
products)
5 Specialisation Occurs when individuals focus on a limited number of tasks.
6 What to consider Businesses should consider
when choosing a  The cost
method of  The likely level of demand
production  The need for flexible production
7 Efficiency Refers to how well a business uses its resources. If a business has high
levels of inputs to produce its output, it is inefficient compared to a
business that uses fewer inputs to produce the same output. Efficiency
is measured by looking at the cost per unit. An inefficient business will
have higher unit costs.
The efficiency of a business will depend on factors such as:
 How well employees are managed – if they are well managed and
motivated, they should produce more and therefore, the cost per unit
should be lower.
 How good suppliers are – if suppliers are reliable and provide good-
quality supplies, then this helps keep costs lower.
 Investment in machinery and technology – if a business has good-
quality equipment and up-to-date technology, this should help keep
cost of production low.
 The type of production used – job or flow production they can also
use lean production.
18
8 Lean production Lean production techniques aim to reduce the amount of waste in a 13 Just-in-case stock Holds stocks just in case there is a delay from supplies or a sudden
business. Waste is inefficient; if a business can reduce waste it can control unexpected increase in demand.
reduce its costs. There are many forms of waste in a business. Advantages of JIC Disadvantages of JIC
 Can meet sudden increases in demand as has  Holds stock that might go out of date or need to
 If production exceeds demand, then items may have to be thrown
spare stock. have price reduced to sell.
away.
 Lower risk if there are problems with  Higher stockholding costs as it holds stocks just
 Wasted time is inefficient and costs money. In flow production, if
suppliers. in case of an increase in demand or problems
workers have to wait to start work because the stage before have not
 Buy bigger quantities and may get price with suppliers.
finished, they are wasting time.
reductions (bulk discount); less transport costs
 Any faulty products will have to be re-made, costing money.
as less frequent deliveries.
 Holding stocks can be wasteful because they can get damaged or
 Less external costs, from congestion and
stolen. In addition, holding stocks costs money (warehouse costs),
pollution caused by deliveries leading to good
which could be in a back earning interest. – Opportunity cost.
reputation.
9 Just–in–time Means producing to order – the business only makes an item when
14 JIT vs JIC Businesses need to balance the advantages of JIT (the leaner) with JIC.
production there is a customer for it.
Neither of these approaches is necessarily better, but they offer
10 Kaizen Means ‘continuous improvement’. It is an approach in which all
different advantages to different types of businesses.
employees are involved in improving how things are done. The changes
15 Working with All business will use supplies. These supplies may be:
are often very small, but over time can add up to significant
suppliers  General items used to keep the business going, such as energy,
improvements. By involving employees the business learns from the
telephone and cleaning products.
people who actually do the work.
 Materials used in the production process – for example, a car will
11 Managing stock Stocks are important because a business needs them to operate and
include thousands of different supplies, such as engine parts, tyres ,
produce. Having stocks can also be attractive because it may mean you
paint and seats.
have a wide range of products to show customers.
 Major purchases used to create the production process – for
12 Just-in-time stock You only store the materials you are about to use in production, based
example, the production line equipment in the car factory.
control on having a customer with an order.
Advantages of JIT Disadvantages of JIT
The procurement, of supplies is an important part of operations
 Cuts stock-holding costs and increases  There is little room for mistakes as minimal
management. Managers will want to make sure that their money is used
efficient use of factory space. stock is kept for the reworking of a faulty
wisely and not wasted and that the right supplier is chosen.
 Capital expenditure that was used to pay for product.
16 Procurement Involves selecting suppliers, establishing the terms of payment and
stocks can now be used more efficiently in  Production is very reliant on suppliers and if
negotiating the contract.
other parts of the business. stock is not delivered on time, the whole
17 The supply chain The supplier of a business will also tend to have its own suppliers and
 Close contact with suppliers at all times leads production schedule can be delayed.
this creates a supply chain.
to better, more efficient supplier relationships  There is no spare finished product available to
(e.g. wiliness to supply goods at very short meet unexpected orders, because all products Supply chain refers to all the businesses, people and activities that take
notice). are made to meet actual orders – however JIT is part in the production processes from the start until it gets to the
 Improves efficiency of cash flow by reducing a very responsive method of production. customer,
the time between paying for supplies and  Cost of ordering supplies could increase as so With globalisation, these can be more complex across different
receiving payment from customers. many small orders are made rather than one countries, or more localised in the UK.
 Less time is spent on checking and re-working order and one large delivery of supplies.
18 Why suppliers matter  If suppliers can deliver products on time, this means the business has
the product of others as the emphasis is on
the stocks that it needs and can meet its own customer requirements.
getting the work right first time.
 If suppliers can produce and deliver quickly and reliably, a business
can hold relatively little stock because it can be replaced; this reduces
its stockholding costs.

19
  It a suppliers provides good-quality products, this will help the  Staff – can be asked to check the quality of work done at each stage
reputation and quality of the business. It will not have problems with of production. Quality assurance focuses on preventing mistakes
defects and returned items so wastage is reduced. occurring. This involves training the employees to inspect their own
 If the supplier can produce efficiently, this will help reduce the costs work, choosing the right suppliers and checking work at each stage to
of the business and enable it to provide its products, at a better price make sure faulty work is not passed on.
or increase its own profit margins. 25 The consequences of If products do not meet the standards set, this will lead to:
19 Factors affecting  The costs quality problems
 Customer dissatisfaction – customers may not buy the product again
choice of suppliers  The quality
or recommend it to others; if customers are unhappy, they tend to
 The range of products that can be supplied
tell other and this damages the brand
 The speed of delivery
 The cost of recalling faulty products – customers need to be told
 The flexibility of the supplier (for example, in terms of the quantities about any mistakes, and the business must pay to get the products
that can be produced and the time of deliveries) handed back in.
 The reliability (that is, the ability to deliver within a given time slot)  The cost of replacing goods – new items may have to be produced to
 The reputation (that is, what have other said about working with thins replace the old ones.
business)  The cost of waste – if there is poor quality, the items may have to be
 The payment terms (for example, how long would the business have thrown away.
to pay)  The cost of goods that are produced but no one wants
 The contract terms ( for example, what financial compensation would  The cost of legal action if the business is sued for poor quality
be paid if deliveries were late)
26 Maintaining To maintain quality, a business should:
20 Logistics Refers to the movement of goods, services, information and money consistent quality
throughout the production process.  Make sure its suppliers are reliable and that the products they use are
21 Trade-offs in the  It may cost more to get better quality (although this may save money of good quality and meet their needs.
supply chain later on as it may lead to fewer problems with customers)  Train staff so they know how to do their jobs properly and what the
 It may cost more to get supplies quicker desired standards are.
 To benefit from reduced costs, this must be balanced against the  Invest in equipment so that staff have the equipment they need to do
quality of the service. the job well.
22 The meaning of A quality product is one that meets the customer’s requirements.  Inspect the products at each stage of the process to make sure there
quality are no defects – it’s easier and cheaper to catch any problems along
23 Meeting customer Achieving quality involves hitting targets that have been set by the the way than to rely on finding them at the end.
expectations business in order to meet customer expectations. The target set will  Involve staff in improving the process e.g. Kaizen
depend on the nature of the business. 27 Total Quality Is an approach to quality in which everyone is focused on preventing
Management (TQM) errors occurring and ensuring quality at each stage of the production
 A hospital might set targets for the length of time patients are kept process.
waiting.
 An airline might set targets relating to the percentage of planes taking Required everyone in the business to be working towards ensuring the
off on time, or landing on time. quality targets are met.
24 Measuring quality Once a business has set standards for quality, it can measure whether or
and identifying not these have been achieved. To measure performance it may ask It stresses that everyone has a customer and that may be the next
problems different groups: employee who you pass work onto. Each employee must ensure that
they pass on work that meets the quality targets.
 Customers – ask them to complete surveys or speak to the manager.
 Mystery visitors – some business employ mystery shoppers to use Not all employees will want the extra responsibility and they may not be
the product in secret to test the quality of service. Staff could feel like skilled enough to identify mistakes in their own work
they are being spied on.
20
28 The costs of The costs of achieving better quality include:
improving quality
 The costs of inspection and checking – known as quality control
 The costs of training staff to check their own quality
 The costs of selecting better suppliers
29 The benefits of  Image /reputation – having good quality products or services will
maintaining quality help maintain or improve the reputation of a business. Particularly if
the quality is deemed superior than that of competitors.
 Additional sales – customers are more likely to come back and
recommend a business if they know they can trust the quality. You
always know what you are going to get at McDonalds or Starbucks,
but at a new café it is not easy to already know the quality.
 Higher price – customers will be more willing to pay for reliability and
for the reassurance that what they buy will work and do what it is
supposed to.
 Saves costs – avoiding mistakes saves money. It does not have to
rework/replace faulty products if the product is dangerous, they
could even be sued by customers.
 Easier to launch new products – as a business has built up a good
reputation it makes it easier for customers to trust new products that
it launches.
30 Problems achieving It can be difficult to maintain and monitor quality in your own business.
consistent quality It can become more difficult if you franchise your business or outsource
some of the production process you lose an element of the control over
quality, this can mean that quality may suffer.
31 Customer service Is the part of a business’s activities that is concerned with meeting
customers’ needs as fully as possible.
32 Methods of good  The product – providing products or services that meet the needs of
service customers is a form of providing high-quality customer service.
 Reliability – good should be reliable and do exactly what is expected
of them. E.g. paint should last for years without fading.
 Safety – ensuring that the product is safe is important as customers
worry about safety when buying some products/services e.g. like air
travel.
 Customer engagement – positive customer engagement occur when
customer have a good experience from their contact with the
business. The customer is more likely to buy from it and recommend
it to others.
 Good product information – customers expect clear information
about goods or services. This helps them make the right decision. It is
therefore important for staff to be well-trained.
 Post-sales (after-sales) service – businesses should deal quickly and
fairly with complaints, deliver products without delay, exchange
goods that are faulty for do not meet the customers’ needs and repair
goods (free of charge under guarantee).
 Premises – they should be clean (e.g. food places), customers should
be able to find their way around (e.g. hospitals), disabled customers
should be able to access the business and there should be sufficient
services like toilets.
 Different methods of payment – small business can increase sales by
accepting other methods of payments such as cheques, credit cards
and also providing small quantities of products at proportionally low
prices.
 Managing customer expectations – if the shop should open at 9am
then it should do and not at 9:15am. In a restaurant you expect to be
served in a certain time and receive your food shortly after.
Businesses need to think carefully about what they promise.
33 Benefits of good  It helps a business to be competitive - especially if they can’t
customer service compete on price -
 Increases customer satisfaction – customers feel good if they have a
good experience, so less complaints are made, staff feel happier.
 Attracts new customers – if the product is similar to competitors,
then good customer service will attract customers.
 Increases customers spend – customer may be more willing to spend
with a business that provides good customer services.
 Increases market share – as you get more customers, market share
could increase. This increases your influence in the market.
 Increases customer loyalty – you are less likely to lose customers
when new products or competitors come into the market.
 Increases profitability – all of the above leads to an increase in
profits.
34 Why does poor  Businesses promise too much – customers’ expectations are raised
customer service above what the business can deliver. Customers are dissatisfied when
occur? this happens.
 Poor communication – information about the level of service if not
clear and customers expect more than what is actually provided. E.g
waiting times at a GP surgery. If delays are not communicated in
advance, customers do not expect them and are unhappy.
 Poor management – the business may have the resources to provide
good customer service, but if the management of them is poor, the
level of service drops. E.g not enough staff allocated to the right jobs.
 External factors – this could be out of your control, such as delays
from suppliers, or weather conditions that affect the level of
customer service.
21
35 Dangers of poor  Dissatisfied customers – they will not return to buy from the business.
customer service  Problems attracting new customers. There will be little word of
mouth from current customers.
 A loss of revenue and profits
 Costs, if a business has to reimburse customers because they have
been sold the wrong items or given the wrong information.
36 How ICT can help  Websites – can give the customer information about the business and
businesses to offer the products sold. It can help advertise the business to a much larger
good customer group, leading to increased sales. It can include FAQ, this can allow
service customer to find out answers to questions they may have. It can offer
advice to customer about problems they may have
 E-commerce and M-commerce – customers can view products from
24/7 from all over the world. They can see other people’s reviews of
products. They can ask questions of online support teams. They may
receive suggestions based on their purchases. Could benefit from
lower prices online.
 Social media – helps build awareness of the product/brand. Allows
customer another interface to interact with the business. Can get
feedback from customers.
 Data analysis – it can help a business rebrand a product, or alter the
price based on the data provided. It can help improve decision making
in the business as they can understand the customers and their
buying behaviour. They can track the effectiveness of their marketing.

Not all employees will be skilled enough to use the technology. It may
mean training is required or outside specialists may need to be paid for.

22
4) Human Resources (paper one)
1 Organisational
structure
2 Why businesses have
organisational
structures
Is the way a business arranges itself to carry out its activities.
Business have to organise themselves to be able to carry out their
activities effectively. It is important that everyone in the business
knows:
 Quicker communication as there are fewer layers
in the business.
 More responsibility is given to each manager and
worker – as cannot control everyone all the time.
 Workers may need training to take on
responsibility, which could increase motivation
levels.
 It is easier to control fewer staff, so
managers can closely supervise quality.
 Training costs will be lower as workers will
not have to be trained how to take
responsibility and decisions.
 Responsibility is kept in the hands of senior
managers so there is less risk of low-level

 What their duties are.

3 Organisational chart
4 Line manager
5 Authority
6 Job roles
Job role
Directors
Managers
Team leaders (supervisors)
Shop-floor workers
7 Span of control
Wide Span of Control
 The person or people that they have to report to.
 The other employees in the organisation for whom they are
responsible.
Is a plan showing the roles of, and relationships between, all the
employees in a business.
Is an employee’s immediate superior or boss.
Is the power to control others and to make decisions
Responsibilities
 Establish the business’s overall goals
 Set long-term plans and targets for the business
 Work to achieve the short-term and long-term targets set by the
directors
 May be responsible for a function within the business, for
example, marketing or finance
 Use employees and other resources in the best way possible.
 Help managers to achieve their targets by reporting any problems
and passing on instructions
 Take simple decisions, such as allocating jobs among different
employees
 Carry out the business’s basic duties or activities. These could be
working on a production line, serving customers in a shop or basic
office duties.
Is the number of employees managed directly by another employee
Narrow Span of Control
 Appropriate for senior managers who believe workers making wrong decisions.
workers should be involved in decision-making.  Appropriate for senior managers who
believe that workers need to be controlled.
8 Levels of hierarchy Are the layers of authority within a business. The business with the
narrow span of control has 4 levels of hierarchy. This means that the
employees at the bottom of the organisational structure have three
layers of authority above them.
9 Chains of command Is the line of authority within a business along which communication
passes. E.g. Directors decide on a target and communicate this to
managers, this is then passed on as an instruction to team leaders and
they shop-floor workers. Similarly each level of the hierarchy will report
to the level above on the progress made in achieving the target. This
shows how communication can flow up and down the chain of
command.
10 Delayering Is the removal of one or more levels from a business’s organisational
structure.
Advantages of Delayering Disadvantages of Delayering
 Managers are closer to the customer – which  Potentially removes highly skilled and
can make the customer feel more valued experienced employees to competitors
 Can remove highly paid employees that are  Junior employees may not be experienced
not needed – reducing business costs enough to make suitable decisions.
 Workers are given more responsibility – which  Training of junior employees adds additional
can potentially motivate them costs.
 Can improve communication within the  Could increase the span of control when a level
organisation as messages have to pass through of the hierarchy is removed.
fewer levels of hierarchy.
11 Delegation Is the passing of authority to more junior employees. In very small
businesses the entrepreneur might take all the decisions. In a larger
business there are too many decisions to make. E.g. a store manager in
a supermarket might delegate authority to more junior employees to
order supplies of vegetables.

Each assistant manager has a span of control of 5 Each assistant manager has a span of control
people of 2 people
23
 Advantages of Delegation Disadvantages of Delegation 18 Effects of flat  Downward and upward communication may become easier as there
 Reduces management stress and workload  Cannot/ should not delegate accountability organisational are fewer level of hierarchy for messages to pass through.
 Allows senior management to focus on key  Depends on quality / experience of subordinates structures on  Giving greater authority to junior employees can encourage upward
tasks  Harder to do in a smaller firm communication communication, which means managers have more knowledge about
 Subordinates are empowered and motivated  May increase workload and stress of what’s going on.
 Better decisions or use of resources subordinates.  Wider spans of control may mean that line managers are responsible
(potentially) for large numbers of people, this may result in more emails and fewer
 Good method of on-the-job training meetings, the quality of communication may suffer.
12 Using organisation Not all businesses use the same organisational structure. Some business  Horizontal communication may become more difficult as there are
structures may opt to use ‘tall’ organisation structures, while others use ‘flat’ more people on each level of the hierarchy.
structures. 19 Effects of tall  Normally operate with smaller spans of control. This can lead to good
13 Flat organisational This has wide spans of control and few levels of hierarchy. There is likely organisational communication between managers and subordinates.
structure to a greater level of delegation. structures on  Often experience problems in passing information through the levels
14 Tall organisational This has narrow spans of control and a larger number of levels of communication of hierarchy. Messages can become garbled or may not be passed on.
structure hierarchy. This means that the authority it likely to stay with the line 20 Centralisation Tends to keep all decision making with managers and head-quarters.
managers instead of people lower down the hierarchy. Advantages of Centralisation Disadvantages of Centralisation
15 Influences on choice  The skills of the workforce – skilled workers are more able to take  Easier to implement common policies.  More bureaucratic – often extra layers in the
of organisational decisions on their own and need less supervision from managers, thus  Prevents other parts of the business from hierarchy.
structure managers may choose wider spans of control and a flat organisation becoming too independent.  Managers are further from the end customer, so
structure. E.g. in a hospital with doctors.  Easier to co-ordinate and control from the more difficult to know their needs.
 The management style used in the business – managers that like to center e.g. with budgets.  Lack of authority down the hierarchy may
retain control over employees will be more likely to use a tall  Economies of scale and overhead savings reduce manager motivation.
organisational structure. Those who do not wish to control employees easier to achieve.  Customer service does not benefit from
closely will delegate and use a flatter organisational structure.  Greater use of specialization. flexibility and speed in local decision making.
 The business’s competitive environment – a business in a  Quicker decision-making (usually) – easier to
competitive environment may wish to keeps its costs to a minimum show strong leadership
and have the best possible performance from its workforce. This may 21 Decentralisation Normally a decision taken when a business grows in size because it
lead to a flat organisational structure. This structure requires fewer becomes difficult for a small number of senior managers to make all the
managers, helping to reduce wage costs. decisions. Allows employees working in all areas (branches,
16 Organisation There are three types of communication that take place within a departments or factories) of the business to take decisions.
structure and business. Advantages of Decentralisation Disadvantages of Decentralisation
communication  Downward communication from senior employees to more junior  Decisions are made closer to the customer.  Decision-making is not necessarily “strategic”.
ones.  Can allow for faster decision-making.  More difficult to ensure consistent practices and
 Upward communication from junior employees to their line  Better able to respond to local circumstances. policies (customers might prefer consistency
managers and other more senior employees.  Improved level of customer service. from location to location).
 Horizontal communication, which takes place between employees at  Consistent with aiming for a flatter hierarchy.  May be some diseconomies of scale – e.g.
the same level in the organisation, for example, a discussion between  Good way of training and developing junior duplication of roles.
managers management.  Who provides strong leadership when needed?
17 Methods of  Meetings  Should improve staff motivation.  Harder to achieve tight financial control – risk of
communication  Video conferencing cost-overruns.
 Telephone conversations 22 Recruitment Is the process of finding and appointing new employees
 Emails
 Business intranets
24
23 Why businesses need  Starting a new business – a new business will need to recruit
to recruit employees employees if its owners cannot carry out all the necessary tasks and
duties themselves. E.g. too many duties to do, or lacking in the skills
to do all the duties.  Manager will have a wider choice of
 Expanding a business – a business may be increasing its production
and will need similar employees, or diversifying into new products
and may need employees with different skills.
 When employees leave – happens when people have been offered  They could bring in fresh ideas and
another job, this could be a promotion. Or when people retire or stop
working for reasons such as caring for dependents (children)  Provides employees who have the right skills
24 The importance of Recruiting the right person will ensure the business have the suitable set
recruiting the right of skills it needs to be successful. If the wrong people are recruited it
person and keeping can impact on quality, efficiency and profits as customers may leave if 28 Methods of
them they are unhappy. The business may also then have to spend time and
money recruiting other people.
Once a business has recruited the right employee, it tries its best to
retain them. High rates mean that large amounts of the workforce leave
over a year. Low rates mean that few members of the workforce leave
the business, this can help reduce recruitment and training costs.
25 Retention Is the proportion of a business’s workforce who remains with the
business over a period of time, usually a year.
If a business has 1500 employees and 1350 have worked for the
business for more than a year. Its employee retention will be
1350 ÷ 1500 x 100 = 90%
26 Internal recruitment Is filling a job vacancy from any suitable person already employed by the
business.
Advantages of Internal Recruitment Disadvantages of Internal Recruitment
 Candidates will have experience of the  Firms may have to pay for training when
business and will be familiar with its methods promoting or transferring employees, as they
of working. might not have all the right skills for the job.
 Candidates will know many of the people with  Can only choose from a limited number of
whom they will be working. employees, the choice of skills is limited. 29
 Internal recruitment provides employees with  Creates another vacancy when the employee is
the chance of promotion, which may help to promoted
motivate them.
 Internal recruitment is cheaper as it avoids the
need for expensive external advertising.
 Prevents breaking up existing teams and
avoids jealousy of people being promoted
over other workers
27 External recruitment Is filling a job vacancy from any suitable person not already employed by
the business.
Advantages of External Recruitment Disadvantages of External Recruitment
 Can be more costly to advertise
candidates; this can result in applications from  Can be more time consuming
higher-quality candidates, especially if  Can cause demotivation in current workforce, if
advertised nationally. they feel there is no chance of promotion.
 The business knows less about the person,
enthusiasm. which could mean there is a greater chance of
making a mistake.
immediately, training existing employees can
take time.
Internal
advertising vacancies
 The owner or manager tells employees about the job vacancy.
 Certain employees are invited to apply
 Advertisements are placed in the business’s employee newsletter.
 Advertisements are placed on notice board, the internal website or
sent by email.
External
 Advertising (newspaper, radio, internet) – this could also be in
specialist trade magazines.
 Jobcentre Plus – they help bring together businesses looking for
workers and suitably skilled people.
 Employment agencies – are privately owned businesses that help
business recruit employees. They give businesses a list of suitable
applicants and might help a business choose the most suitable
applicant. They are paid fees for these services.
The way in which the job is advertises will depend on the business and
the type of job available. For lower skilled jobs they might use local
papers. But for more senior positions, the advertisement might be
national and in specialist magazines.
The recruitment and 1.Business needs new employees because of growth, entering new
selection process markets or employees leaving.
2.Job descriptions and person specifications drawn up using data from
job analysis.
3.Job positions are advertised internally or externally (or both)
4.Applications are received and kept until the closing date.
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30 Documents used in before any recruitment documents can be prepared, it is necessary for a
the recruitment business to conduct job analysis. This is the collection and interpretation
process of information about a job. To identify the best person for the job,
managers must understand what the job involves.
31 Job description Is a document stating information about the duties and tasks that make
up a particular job. It usually includes:
 The title of the job
 The hours and place of work
 The main tasks that make up the job
 The employees for who the person will be responsible to and for
32 Person specification Is a document setting out the qualifications and skills required by an
employee to fill a post that is advertised. It might include:
 Educational qualifications
 Vocational or professional qualifications
 Ability to work as part of a team
 Experience of similar jobs
A person specification may list some qualities and qualifications as
essential and others as desirable. This can help in the short listing.
33 Job advertisement A job advertisement would normally include:
 The title of the job
 Some information about the business
 The location of the job
 Working hours expected and holidays offered
 Pay rates
 How to apply and the closing date for applications
Businesses often use employment agencies to draw up job descriptions
and person specifications, and to place their job adverts.
34 Application form and To apply for a job, it is necessary for applicants to give some information
curriculum vitae (CV) about themselves. Such as name, age, address, employment history and
qualifications. This can help the business match the application against
the person specification. An application form is a standardised form and
makes it easy for the business to find the information they want.
Sometimes applicants will provide a CV, these will be similar to the
application form but will differ from candidate to candidate.
35 Selection process 1. Match application form or CVs against the job specification.
2.Draw up a shortlist of candidates (perhaps 8-10).
3.Invite applicants to attend the selection process.
4.Selection process – interviews, psychometric tests and an assessment
centre.
5.Choose the best applicant(s) on the basis of performance in the
selection process.
6.Inform all candidates of the decision taken.
36 Interviews Is the most common form of selection. It is quite cheap for the business,
but is not always the most reliable way of selecting the best people for a
job. Some people are very good at interviews, but that does not mean
that they will be good at the job.
37 Psychometric tests These are multiple-choice tests designed to show the personality of the
candidates. This can help choose the applicant with the most suitable
personality for the job.
38 Assessment centre This form of selection is increasing particularly for senior appointments.
They include:
 Role plays simulating the job itself
 Psychometric tests
 A number of interviews
 Practical tasks for candidates to complete
These tasks can be demanding and stressful and help the business to
identify who can respond well under pressure.
39 The benefits of an Having an effective recruitment and selection process can ensure that
effective recruitment the business has the most skilled and experienced employees and
and selection process reduces the chances of them leaving within a short period of time.
Other benefits become more apparent in the long-term and should
result in increased profits for the business.
 High levels of productivity – appointing the best employees can help
a business to achieve high levels of productivity. This means
employees product relatively large quantities of goods or services
over a period of time. This means the labour cost per unit is lower.
This can help a business to be more competitive as it helps to sell
products at a lower price, this can increase sales. Alternatively the
business could sell at higher prices and enjoy increased profits as its
costs of production are low.
 High-quality products or customer service – appointing the very best
people will help a business supply good quality products as the
employees will have the skills and ability to produce good quality
products. Having high quality or good customer service can lead to an
increase in sales and profits.
 Employee retention – having poor retention of employees can lead to
higher costs, as you have to replace the employees that leave and
then train them once employed. It can also lead to reductions in
quality and customer service as it takes time for new staff to settle in.
customers may be unhappy if they had expected to deal with a
certain employee and now have to deal with a new one. Finally, the
productivity of the business will be reduced until new employees
become familiar with how the job is done and have had training.
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40 Contracts of Employees have to be given a contract of employment within two
employment months of starting work. It is a legal agreement between an employer
and employee. It includes
 Normal working hours
 Rates of pay
 Holidays
 Duties at work
 Place of work
41 Full time Occurs when someone works a number of houses equal to the normal
working week, normally between 35 and 40 hours.
Benefits to Employers Benefits to Employees
 May benefit from having employees at work  Full-time employment means workers are paid
throughout a normal working week, this can for more hours each week. This can improve
result in better communication as employees living standards and reduce the need to find a
are more likely to be able to speak directly to second job.
one another.  Employees are more likely to be able to gain
 Full-time employees may be more skilled and promotion as a full-time employee. Full-time
experienced as a result of being at work for working can allow them to attend more training
more hours each week. This can improve their courses ad to gain more experience.
performance at work.
42 Part-time Occurs when an employee works fewer that the normal number of
working hours per week.
Benefits to Employers Benefits to Employees
 Part-time employees can help businesses to  Employees can fit in work with other
cope with busy periods during the week, for commitments, such as caring for older relatives
example, some shops may attract large or children. May employees only work during
numbers of customers at the weekend. Having school hours or for half days. This allows them
part-time employees at work can help provide sufficient and suitable hours to care for their
good customer service. relatives.
 Some businesses need employees with  Some older employees may not want a full-time
specialist skills, but do not need them job, but do not want to retire. Part-time work
throughout the working week. For example, a can be a ‘half-way’ solution on the road to full
small business might need an accountant to retirement
organise the payment of employees and to
update financial records. This might only
require one or two days’ work a week.
43 Job sharing Occurs when two or more people combine to fill a single job role. Such
as someone does the morning duty and another person does the
afternoon duty. Employers can benefit from having a broader range of
skills. However communication may suffer between the employees.
44 Zero hours contracts Allows employers to hire staff without any guaranteed hours of work.
The employees may get no hours or may get a large number. Employees
do not have to accept any of the hours they are offered. However
turning down hours may lead to them not being offered them in the
future.
45 Motivation is the range of factors that influence people to behave in certain ways. It
can be described as the will to do something. It is the force that drives
an employees to work very hard and to carry out their job as effectively
as possible
Financial Motivation – offering employees higher pay or bonuses
through reaching targets, could lead to increased levels of motivation.
Non-Financial Motivation – factors such as praise or the opportunity to
carry out a more interesting job could motivate employees.
46 Why do people Everyone who works is motivated to do so by one or more factors.
work? Maslow believed that people worked their way up from the bottom of
the hierarchy meeting each of the levels of needs. E.g. as soon as
someone is able to provide food and water, they then look to develop
security in their job. They then want belonging and want to accepted at
work.
47 Benefits of a  Increased productivity levels – this allows a business to reduce its
motivated workforce cost per unit meaning they can be more competitive in their pricing
and lower the sales price to increase sales. To keep prices the same
and benefit from higher profits due to lower costs.
 Improved employee retention rates – employees who are motivated
are more likely to be loyal to a business. This removes the need to
recruit new employees and the costs of that and removes the need to
train new employees. It also allows the business to benefit from the
skills and experience of its workforce.
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  Higher levels of sales – motivated workers will work hard to meet the
needs of customers. Customers treated like this will be more willing
to buy goods and services.
 Improved recruitment and selection – motivated staff gives the
business a reputation as a good employer. This makes it easier for a
business to recruit the best and most skilled employees.
48 Methods of  Increasing authority through job enrichment – some employees may
motivation (non- lack motivation because they are bored. Job Enrichment can help
financial) correct this by making jobs more demanding and challenging. It can
give employees more diverse duties as well as more authority to take
decisions at work.
 Training – an employee may not be able to take on more demanding
duties without being trained. Training in itself is likely to motivate
employees because it shows that the business owner values the
employees. It can also motivate by making the workplace safer
following health and safety training.
 Management styles – authoritarian managers tend not to motivate
employees as they make all the decisions. Democratic managers to
allow employees to help make decisions help motivate workers as
they feel their opinion is valued as allow them meet their needs to
self-esteem and self-actualisation.
 Fringe benefits – these types of benefits supplement the pay that
employees receive. They could include: health insurance, a company
car, discounts when buying the company’s products. If offered to a
larger number of employees can become expensive.
49 Methods of  Salaries – is an income received by an employee, stated as an annual
motivation (financial) figure. Thee employees are not normally required to work a set
number of hours per week. Employees paid in this way may be
motivated by an increase in salary, perhaps alongside some fringe
benefits.
 Wages – usually paid each week and employees normally work an
agreed number of hours. A higher hourly rate (overtime) is paid for
any additional hours worked, an increase in the hourly rate may be
used to motivate employees.
 Piecework – employees are paid according to the amount they
produce. They are paid an agreed figure for each unit of output they
product, this is subject to them receiving the National Living Wage as
a minimum.
 Commission – this is a payment to an employee based on the level of
sales he or she has made of a period of time. It is normally paid in
addition to a wage or salary.
 Profit sharing – employees receive a share of the business’s profits
alongside their normal wages or salaries. This can motivate as
employees benefit directly from an increase in the business’s profits.
50 Training Is a range of activities giving employees job-related skills and
knowledge.
51 Benefits of training  Improvements in productivity – this can make them better at their
jobs as they learn new, improved and efficient ways of doing their
job. This could be: how to use new technology, how to reduce time
wasted on unnecessary tasks or correcting mistakes.
 Improvement in quality – training enables employees to improve the
quality of the work they do. This can lead to customers being more
satisfied and therefore more willing to purchase from the business
which would increase profits. This can relate to products or to the
level of customer service provided as employees know how to meet
the customer’s needs.
 More motivated employees – can make employees feel valued, this
will make them more committed to the business. Training allows
employees to take on more challenging tasks (job enrichment). They
also feel that there will be a chance of promotion.
 Improved rates of employee retention – makes them more loyal to
the business, so that they are less likely to leave the business. The
business benefits from the skills and experience and do not have to
pay to recruit new employees.
All these factors enable the business to be more competitive.
52 Types of training  Induction
 On-the-job training
 Off-the-job training
53 Induction training Is training given to an employee when he or she first starts a job. It is
intended to help new employees to become more familiar with the
business and the job they are to do. It might involve:
 Meeting other employees at the business with whom they will work
with closely.
 Learn key information about the business, such as how its IT systems
work or health and safety information.
 More about their role in the business.
Induction training helps new employees integrate with existing workers
and helps them conduct their jobs effectively. It can help them become
more productive earlier.
It can help retain employees as if they do not receive training within a
certain period of joining they may leave. Induction training can help
avoid low rates of staff retention and therefore avoid the additional
costs of recruitment and retraining.
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54 On-the-job training Is training that is done within the workplace. This type of training means
that employees may learn from more experienced workers.
It can take the form of:
 Work shadowing – here experienced and skilled employees are
observed during the working day. They may offer advice and guidance
as well.
 Formal training sessions – these can be led by experienced
employees or by specialist trainers from outside the business. These
sessions can update employees on changes such as health and safety.
They can be used to prepare employees to take on new roles within
the business.
 Computer-based training – employees can conduct a number of
questions or work through some scenarios. This is an efficient form of
training as it can be done without a trainer.
Advantages of On-the-job training Disadvantages of On-the-job training
 It can be a relatively cheap way of providing  It is unlikely to bring new ideas into the business
training. Employees do not have to travel to a unless an outside trainer is used. As a result it
training centre. This is particularly good for may not lead to dramatic improvements in the
businesses that cannot afford to spend lots of performance of a business’s employees.
money on training. It means that more  Using this type of training can result in more
employees can benefit from the training employees being unavailable to work within the
resulting in an increased level of productivity. business for a period of time. E.g. the business
 It targets the exact needs of the business. This might lose the services of the person who is
means that employees will receive precise providing the training as well as those receiving
knowledge and skills they need to carry out it.
their job effectively.
 Computer-based training can be delivered at
any time and is very effective for large
numbers.
55 Off-the-job training Is provided outside the employee’s place of work. It might involve:
 The employee attending a course at a college or university.
 Studying at home.
 Going on a training course run by a training company.
Sometimes off-the job training can last for a considerable amount of
time. E.g. an accountancy training course that lasts 2 years)
Advantages of Off-the-job training Disadvantages of Off-the-job training
 Can help bring new ideas and approaches into  It can be expensive, so for business making only
a business. This can help a business remain small amounts of profit, it may not be
competitive. affordable. They may only choose to send
 Off-the-job training is expensive and can be selected members of staff on training, which
used to motivate employees. This is because could mean those who do not attend may not
they feel valued by their employer because feel as valued.
the business is spending significant amounts of  There is a risk that employees may leave the
money on improving their skills. This can result business for a new job once the training is
in substantial improvements in the employee’s completed. Off-the-job training can prepare
performance at work. employees to work in a range of different
 It can give more credibility to the training, businesses. Thus a business may spend heavily
which can be good for getting cheaper on training an employee, but receive little or no
insurance if the training is about something benefit in return.
like fire safety.
56 Factors influencing  The business’s financial position – as off-the-job training is expensive,
the decisions on businesses in weak financial positions will be more likely to choose
types of training on-the-job training.
 The type of training required – very specific training requirements
will be best served by on-the-job training as off-the-job training can
be generic training. Training that is more long-term such as
accountancy qualifications would be done through off-the-job
training; this may allow the business to reduce the costs if it takes
place outside working hours.
 The skills and experience of the business’s workforce – if the
employees that provide the training are unable to communicate this
effectively you may choose to bring specialist in or send employees
out on off-the-job training. Business that grow rapidly or have low
retention rates will have large numbers of new staff. This will make it
difficult to provide in-house training.
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5) Marketing (paper two)
1 Exchange Occurs when someone gives up something in return for something else.
E.g. a business exchanges a product for money.
2 Identifying a business A business must identify and offer something that customer’s value and
opportunity are willing to pay for.
 Is there something the business can do better than others?
 Is there something that customers are unhappy with at the moment?
 Is there something that customers are missing and want.
3 Needs A need is a basic human requirement – we need to eat and drink.
4 Wants A want is a desire for a particular product – we need to drink, but we
want Coca-Cola
5 Customer Is someone who buys a product from a business
6 Consumer Is someone who uses goods and services produced by a business
7 Importance of  Increasing sales – by offering something that customers want or that
identifying and is better than competitors, the sales of a business should increase.
satisfying customer  Selecting the correct marketing mix – by choosing the correct
needs combination of Product, Price, Place and Promotion, the more likely a
business will appeal to its customers.
 Avoid costly mistakes – if a business misunderstands its customers
and makes mistakes with the type of product, or the price it sells it
for, then this will cost the business a lot of money, as they may have
to withdraw products or lower the price, which means they may not
be able to cover production costs.
 Be competitive – if a business can offer better perceived value, it
makes them more competitive in the market. If a business
understands what exactly customers want to buy, when they want to
buy it, how much they are prepared to pay for it and where that are
likely to look for it, they will be able to develop their marketing more
effectively and be more competitive.
8 The size of the How big the market is.
market  Sales Volume – measures the number of items sold.
 Sales value – measures the revenue generated.
It is possible for the volume of sales to increase but the value to
decrease. Equally the volume may fall, but the value could increase if
prices are rising.
Some business will want to be the market leader on sales volume others
on sales value and will use this within their marketing.
9 The growth of the The growth of the market based on last year’s market size
market E.g. the sales in the market last year were 200,000 units and this year is
220,000 units. The market has grown by 10%.
Market growth = (change in market size ÷ original market size) x 100
This could also be done using the value figures.
10 Segmentation Occurs when a market is divided into different groups of needs and
wants.
11 Market segment Is a group of buyers with similar needs within the overall market.
12 Benefits of  Develop its products to fit customer needs more closely
segmentation  Target its customers more precisely – it can promote its products in
the right places at the right time to boost sales.
 Set the price appropriately. E.g. if the is high demand, but relatively
few providers, it may be able to charge more for its products.
There may be limits to how far a business wants to segment as
ultimately everyone has slightly different tastes and in most cases a
business cannot completely tailor-make a product for each customer.
13 Ways of segmenting  By gender – a clothes retailer might have some products specifically
a market targeting women and other targeting men.
 By age – may target some toys at children (Duplo) and others at older
customers (video games)
 By location – McDonalds changes its menus in different countries
around the world.
 By income – a business might target high income earners with its high
range products and lower income earners with other products.
 By the stage someone has reached in their life cycle – customers in
the age range to start families may be targeted with baby products
whereas older customers may be targeted with retirement products.
14 Targeting Once a business has identified relevant segments in its market, it will
need to decide which ones to focus on. A business will target segments
where it thinks:
 It can make a high enough return; some segments may be too small
or not profitable enough.
 It can compete effectively, that is, it has the skills and resources to
win market share.
 It covers the opportunity cost, that is, there are no better
alternatives.
15 Market research Is the process of gathering, analysing and processing data relevant to
marketing decisions.
30
16 The purpose of Market research will help gather information about: Customer/Supplier  May give insight into future  Suppliers may present a biased
market research  Demand – the size and growth of the market and the different feedback trends, not yet visible on the view.
segments that exist within the overall market. high street.  Does not represent what non-
 Market share – the sales of each producer as a percentage of total  Helps build relationships with customers think
sales in the market. suppliers
 Competition – the number and size of competitors and their share of  Real insight as to how to
the total market sales. Research might identify which businesses are improve the customer
growing and help managers understand why. experience
 Target market – a business is unlikely to want to target everyone in a Focus groups  In-depth information about  Very expensive
market, it will want to focus on particular groups. consumer attitudes and motives  Only carried out using a small
17 Types of data used in  Quantitative data – this involves the use of numbers such as the size behind purchasing decisions sample, so results may not be
market research of the market, the growth of the market or the number of customers representative.
a business has.
 Qualitative data – this involves views and opinions, but does not Internet Research (can be  Cheap and quick  May not find the views of your
provide statistically reliable information. This data focuses on why used as primary to collect targets customers if they are
people do things. information or as not online
18 Marketing research  Market size = number of units sold x price per unit) secondary to research
maths  Market growth = (change in market size ÷ original market size) x 100 information already
 Market share = (sales of the product ÷ total market sales) x 100 gathered)
19 Uses of market  Identify opportunities in markets – E.g. is there demand for a new Printed Press, such as  Can get an insight into what  Can be biased based on the
research flavour of the company’s drink. newspapers and your target market are newspapers political view point.
 Weigh up different possible actions – E.g. is it best to promote the magazines interested in.
product launch online or in print?  Can get information on the
 Assess the effectiveness of actions that have been taken – E.g. how markets, economy and
successful was the price promotion that the business ran last week? competitors.
20 Methods of market  Uses data that has been gathered for the first time
research - Primary Advantages of Primary Research Disadvantages of Primary Research
Observing  Carried out without customer  Time consuming  More up-to-date  Can cost of a lot of money and take a lot of time
knowledge  Does not answer the “Why?”  Specific to the business to conduct.
 Potential for bias reduced question.  Can gather as much data as you require  Failure to ask enough people – meaning the
 Easy to misinterpret  You have more control over the collection – so information collected does not represent the
Experimenting  Test how things work out before  May not represent whole can trust the findings more. typical customer.
a large scale roll-out market.  Asking too many people from one segment (age,
Telephone surveys  Cheap  May be viewed as a nuisance by gender etc.) may mean the results do not
represent the market as a whole
 Allows interviewers to clarify those telephoned
any questions that are unclear.  People may not answer their  Poorly designed questionnaires may use
phones. suggestive of leading questions, which
encourage participants to answers as they think
 Cannot see how people react
you want them to.
(body language)
Questionnaires  Results are easy to analyse as  Interviewer may be bias
most use closed questions. (through an over friendly
 A relatively fast method approach)
compared to others
31
21 Methods of market Uses data that has already been gathered.  The service – is it easy to order in store or online? As the sales staff
research - Secondary well informed? Is there any post-sales services? Is there a delivery
Advantages of Secondary Research Disadvantages of Secondary Research service? Does the product come with a guarantee?
 It can be gathered quickly and cheaply.  It is not specific to the needs to the business.  The performance of the product – does the performance of the
 It can provide information on large sections of E.g. data is about 17-30 year olds when you product match what was promised in the advert?
the population. Normally small businesses want 18-25 year olds.  The price – does the product represent better value for money than
cannot afford this but the government can.  It may be out of date – it may have been the competition?
 It can help find the focus for more extensive collected 5 years ago.
primary research  You are not sure how it was collected – is it 27 Product development When developing a new product a business will consider:
reliable? E.g. were any reward given for doing  The design – what does it offer in terms of features, design, look,
the market research. ease of use or reliability compared to competitors? What needs and
22 Factors that affect  The budget available wants does it fulfil?
choice of market  The usefulness of the research  The price – what will customers be willing to pay for the product?
research  How reliable the research is How much are the benefits worth?
 What current contacts they have to conduct research  The expected sales – what is the likely demand for this product?
23 Use of market  You will be expected to interpret and use qualitative and quantitative  The cost of development and of production – given the expected
research: information market research findings to help make appropriate decisions for sales and the price, will this product make a return that justifies the
that may help different types of businesses. risk in producing and launching it?
decision making  You will be expected to manipulate and interpret data from tables 28 Product Differentiation is where a business wants to make their products stand
and charts. differentiation out from its competitors. E.g. Pepsi and Coca-Cola are the same drink
 You will be expected to identify market size and market share. but people regard them as very different products. A business may
24 The marketing mix  Refers to all the activities influencing whether or not a customer buys differentiate its products by:
a product. The elements of the mix can be analysed using the four Ps:
product, price, place and promotion.  Building the brand image – through its logo, its design and its
communications. This could also be through the design of its stores
25 Choosing the best The choice of marketing mix will depend on factors such as: and the way it advertises and promotes itself.
marketing mix  The product – is it distinctive/ is it a product that needs a unique  The unique selling point (USP) – a business will develop some aspect
design? How long does a customer expect it to last? Something of the product or the service it offers that makes it unique. It could
unique and long lasting might justify a higher price. feature a (Made in the X), a (2-hour delivery) or even a guarantee.
 Competitions’ products – what do they offer and how does it By differentiating its products a business can hope to attract more sales
compare with what you have? and may even be able to charge more.
 The target customers – who are you trying to sell to? How much do 29 The stages of new 1.Generate an idea – this may be a genuinely new idea or simply
they earn? Why are they likely to buy your product? How much do product development improving a product that exits.
they need it? What do they do with their time? (so you know how to 2.Check the idea – this involves testing the idea to see what it would
reach them) cost to develop and what possible returns it might earn; this is to
 Business approach – are you trying to match what your competitors check it is financially worthwhile.
do? Are you trying to be different from your competitors? 3.Develop the product – this will involve testing and putting together
different versions of the product to see what works. This can take
26 The product The product is what customers actually buy. If the product is wrong then many years of research and testing to make sure the product works
it is difficult to imagine that the marketing overall will be successful. This and is safe.
includes its design, its performance, its features and its reliability. Other 4.Trial the product – a trial launch may be used to see if the sales are as
factors are also considered: expected.
5.Launch it!
32

A business may decide not to go ahead with a product at any of these
stages, because it is proving to be too expensive or too difficult that
imagined to develop. Even when launched the product might not be a
success, they could even be withdrawn. Product development can be
risky, but standing still and not innovating could also be risky.
30 Product portfolio Is a collection of products that a firm produces. This enables a manager
of a company to check how the products are doing and decide whether
anything needs to be changed.
31 Boston matrix A famous way of analysing a business’s product portfolio is called the
Boston matrix. This model looks at products in terms of their share of
the market and the growth in the market. It consists of four categories.
 Dogs – are products that have a low share of a low-growth market.
These products are not much use to a business and the business
should either get rid of them because they are not selling enough or
try to improve them to make them much more attractive.
 Cash cows – are products that are doing very well in that they have a
high share of the market. However, the market is not growing very
fast, this could be because it has already grown and is not as big as it
is likely to get. Cash cow products are well known and shops want to
stock them on their shelves. Customers know these products and buy
them in large quantities. This type of product was previously heavily
marketed; the business can now generate revenue from it with
comparatively little promotional expense. Profits from these products
are very good. The business should use the money earned from cash
cows to develop products for the future.
 Question marks – are products that have a small market share of a
fast-growing market. These products could turn out to be very
successful and the market is attractive because it is fast growing.
However, the business cannot be sure whether or not the product will
succeed. Businesses need to spend money promoting and developing
question marks to make sure they are successful. The money for this
could come from the revenue from cash cows.
 Stars – are products that have a big share of a fast-growing market.
Start products are doing well in an attractive market. Businesses need
to keep improving and promoting stars with the aim of turning them
into the cash cows of the future.
32 Balanced portfolio All businesses want a balanced portfolio of products. They need the
cash cows to provide the finance to develop new products (question
marks or stars) for the future. However, if a business has too many cash
cows, the firm should worry about the future as they have too many
products in a market that is not growing.
Equally if a firm has a high number of question mark products, then it is
taking a risk as it is likely that some of these may not succeed.
Businesses pursuing only new products may run out of money if they do
not have cash cows to provide valuable finance.
33 Product life cycle Shows how the sales of a product may change over time.
1. Development – in this stage the idea for the product is
develops and tested to see if it will work. This may involve
building a prototype. During this stage, businesses spend
money but have no money coming in because there are no
sales.
2. Introduction – is when the product is launched and sales
begin. It can involve a lot of expenditure on promotion and
publicity. At this stage a business needs to convince
distributors they should stock the new product rather than
existing brands. This can be difficult as they will not want to
take a risk.
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 3. Growth – is experienced when the product starts to sell faster.
People are beginning to buy more of it and it is becoming
successful. A business may need to find more outlets for the
product at this stage.
4. Maturity – the sales rate begins to slow down. Perhaps a
competitor has launched something similar that is affecting
sales, or perhaps customers simply want something new.
During maturity, a business should consider introducing some
different versions of the product to keep sales up or use some
extension strategies.
5. Decline – occurs when sales start to fall. Decisions need to be
made one whether to boost sales by spending more on
marketing, of should the product be taken off the market.
34 Variation with the The length of time it takes for the life cycle to move from development
product life cycle to decline can vary from product to product. Products like cars can
spend years in the development stage. A few film can be launched and
enter the decline phase within weeks. Some brands are around for years
such as Cornflakes or Coca-Cola.
The marketing mix changes at different stages of the product life cycle.
E.g. at the introduction stage, promotion may focus on making people
aware that the product exists. Over time promotion may start to
concentrate on why the product is better than competition. The price
may have been set high when the product was launched and now needs
to be reduced in order to keep sales growing.
35 Extension Strategies Are attempts to maintain the sales of a product and prevent it from
entering the decline stage of the product life cycle. These include:
 Cutting the price to make the product better value for money.
 Spending more on advertising to make the product more popular.
 Updating the packaging of the product.
 Adding more or different features.
 Trying to get people to buy more of the product; for example
shampoos say on the label that you should always wash your hair
twice.
 Trying to get people to buy the product on more occasions; for
example, we tend to buy turkey mainly at Christmas in the UK – could
you get people to eat it at other times during the year?
 Trying to find new customers; for example, a business might try to
target a new market by selling its products abroad.
36 Price and demand In general an increase in price is going to lead to a fall in the quantity
demanded assuming nothing else has changed. However the extent to
which sales fall can vary significantly.
If the product has a strong brand image or a USP the fall may be small
compared to the price increase. This is why businesses try to
differentiate their products to make demand less sensitive to price
increases. If the fall in sales is small, a business can make more revenue
with a higher price.
If demand is sensitive a business might lower its prices to gain significant
numbers of customers from rivals.
37 Price skimming Is setting a high price for a product when it first enters the market.
 This strategy is used when there is high demand.
 It helps the business to obtain money needed to repay development
costs.
 Once the first group of customers has paid the high price, the price is
then reduced in order to attract new customers who need a lower
price to get them interested.
 This strategy works best if the product is unique in some way and,
therefore people are willing to pay more.
38 Price penetration Is launching a new product at a low price to achieve fast sales.
 Is a way to get market share very quickly and trying to establish a
product as the market leader.
 This strategy works best is customers are very sensitive to price.
 Buy producing on a larger scale, a business may get its name known
quickly and may also benefit from lower costs by buying in bulk and
from other economies of scale.
39 Competitive pricing Is matching the prices that competitors charge.
 This approach is used a lot by supermarket and insurance companies,
which openly compare their prices to show customers that they offer
good value.
 Competitive pricing is common in markets where there are a few big
firms competing directly against each other and where customers can
compare their products easily.
 If the products are similar then the price becomes an important factor
that will influence the customer’s decision to buy the product.
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40 Loss leader Is a product sold at a loss in the hope that the customer will buy other  Rest of the marketing mix – price must fit with the rest of the
items from the business where they can make a profit. marketing mix. If the product is a well-known high-end brand and
promoted in an expensive format, then a high price should be used.
 Supermarkets use this approach by selling some products at a loss  Others –
and advertising these in the shop windows.  Does the customer have to pay the full amount now or can they pay
 This gets customers into the shop, and the supermarkets hopes they in instalments?
will buy some of the higher-priced items.  Can they pay with a credit card or do they have to pay cash?
 Printers are sold at a loss allowing the business to repeatedly sell the  Can they get a discount if they buy in large quantities?
ink cartridges over time making a profit.
41 Cost plus pricing Is where products are priced by covering the cost of it to the retailer 43 Promotional activity Are the different ways in which a firm tries to communicate with its
and adding a percentage on top. customers.
44 Types of promotional  Advertising
 Is an approach that aims to ensure the business covers its costs and activity  Sales promotions
makes a profit.  Public relations activities
 It works by calculating the costs of providing the product and adding a  Personal selling
percentage on to this to decide on the price. This is known as mark-up
 Cost plus pricing is quite common for retailers 45 Advertising Newspapers Local papers such as Sale & Altrincham
 This approach is simple to apply but does not take account of the Messenger are delivered free to most homes, so
demand in the market – it does not directly consider what people are advert has potential to be noticed by local
willing to pay. people.
Magazines People interested in the products/services you
You buy an item at £20 and add on 25%. (25 ÷100) x £20 = £5 (specialist) sell subscribe to these, so your advert is
The new price will be £20 + £5 = £25 targeting your target market.
Television Expensive form of advertising. However, it can
42 Factors influencing  Costs – to make a profit, the price must cover the costs. There are allow the business to portray a high quality
price fixed costs and variable costs to cover. image of their brand/product.
 Demand – this determines what people are willing to pay for a Radio Cheaper than TV adverts and can be used to
product. If demand is high that a business can increase its prices. If target small regions. Might not be heard.
demand is low, the business will probably have to lower priced of the On the side of Can be seen by lots of people
product. buses
 The nature of the market (degree of competition) – if a market Internet (social Can be beneficial for people on-the-go and is a
contains many firms selling similar products then prices have to be media) cheap method of keeping your product/service
competitive. Offering a product that is very different from the in peoples view.
competition gives the ability to charge more. Billboards/posters Have a high visual impact and stay in one place
 A business’s objective and approach to pricing – if a business aims to for a long period of time, so people seem them
gain a large share of the market and make its product well know, then daily.
it may use penetration pricing and have a relatively low price. If it Sponsorship Can allow the business to be seen to be
aims to promote its product as very high quality and top of the range, supporting local sporting teams, or charity
it will probably charge a high price. events. This is good for the businesses image.
 Position in the product life cycle – when demand is rising fast in the Leaflets Cheap to produce, can be handed out to the
growth phase it is probably feasible to keep the price high. If the target market in the street or put through letter
product is in the decline stage, then the price will probably be boxes of local people. Might just be thrown
reduced. away.

35
46 Sales promotions These are short-term incentives to encourage customers to buy the
product.
 Point of sales displays
 2 for 1 offers
 Samples
 Free gifts
 Coupons
 Competitions
These are beneficial to the business as it allows the business to let
customers have a taste of their products or entice them into buying the
product as they have coupons. However, this can be expensive for
smaller businesses and could reduce it profits in the short-term,
although it can increase sales in the long-term.
47 Public relations These are activities used by a business to arrange free media coverage
activities of its activities and/or products. Shops could hold open days, as this is
normally cheaper than advertising. Similarly a business could release a
press statement to get coverage for the brand. The problem with public
relations is that you cannot control what will be said by the media.
48 Personal selling Many businesses will have a sales force to help promote their products.
Members of the sales teams might visit different stores to get them to
stock their products. They will let the businesses know about new
offers, new products and the benefits of their products compared to
those of competitors.
49 What promotion is  Inform customers or remind them about some aspect of the product.
used for  Create of increase sales.
 Create or change the image of the product; to extend sales businesses
may want to change customers’ perceptions of a product.
 Show the benefits of a product; a business may want to explain why
its product is so good.
50 Factors influencing  Costs and finance – some forms of promotion are much more
the choice of expensive than others such as TV compared to a local newspaper.
promotional activity  Target market – if the target market is wide spread then the internet
(growing businesses) might be more effective than leaflets. For a business trying to reach a
local audience, national TV is too expensive. A business also needs to
consider the customer and what they do, what they read, what they
watch or listen to. Only then can you decide the best way to reach
your target market.
 Competitors’ actions – if competitors are visible in terms of
advertising, there may be pressure on a business to respond to this.
Businesses may want to adopt similar approaches to their
competitors if they run successful campaigns.
 Nature of the market – the size of the market, the total amount spent
in the market and where customers are based will all affect the best
way to promote the product. Posters can target a specific area, TV
can target a mass area, and if price sensitive then discounts could
work. If price is not an issue then a gift might be better.
 Nature of the product – the brand image and type of product may
influence what promotion is suitable. If the brand is a premium brand,
then discounts and competitions may not be suitable for the brand. A
two for one may work better in fast food restaurants than in a
jewellery store.
51 Reasons for To inform, To persuade, To remind
promotion
Overall when choosing which promotional activities to undertake
businesses need to think about:
 The coverage of a promotion – how many people will see it?
 The quality of the promotion – how effective is it likely to be?
 The cost.
 The different media options – for example, print, film or sound.
52 The distribution Describes how the ownership of a product passes from the producer to
channel (place) the final customer.
Producer > Wholesaler > Retailer > Customer (two level)
Producer > Retailer > Customer (one level)
Producer > Customer (zero level)
53 Producers A producer supplies goods or services. Cadbury produces chocolate,
Direct Line provides insurance
54 Wholesalers Buy products from producers in bulk and supply smaller quantities to
retailers (known as breaking bulk) some wholesalers sell through cash
and carry stores.
Selling to a few big wholesalers reduces the transport costs for
manufactures, because it is a lot cheaper that transporting to lots of
retailers, it also means the manufacturer has fewer deals to negotiate.
55 Retailers Are the shops that sell goods and services to the final customers.
56 Connecting the  Mail-order businesses – produce catalogues and customers order
distribution channel from these. The businesses do not have physical retail outlets.
 Telesales – this is where businesses sell their products over the
telephone.
 Online selling – this gives customers the opportunity to use click and
collect services.
These are all examples of direct marketing as the business sells directly
to the customer. Providing physical and online operations is known as a
‘multi-channel’ option.
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57 E-commerce Is the act of buying or selling a product using an electronic system such
as the internet. It allows a business to extend its reach to international
markets.
58 M-commerce Is the buying and selling of products through wireless handheld devices
such as smartphones.
Advantages of Direct Selling Disadvantages of Direct Selling
 Customers can order any time  Need to be able to distribute to a much wider
 Customers can order from home range of destinations; logistical and cost issues.
 Customers can order from anywhere in the  Need to be able to handle returned good;
world potentially because customers cannot try on or touch items,
they are more likely to return them.
 Need to ensure the security of the site and
protect customers’ data; logistical and cost
issues when distributing overseas raises the
price of products and can impact on
competiveness.
59 Levels of distribution Wholesalers and retailers are intermediaries in the distribution channel.
 Zero level – this means there is no intermediary between the
producer and the customer. The maker of the product sells direct to
the final buyer.
 One level – this occurs when there is one intermediary between the
producer and the customer. E.g. a business sells to a retailers and
then to the customer.
 Two level – when there are two intermediaries between the producer
and the customer. A wholesaler buys in bulk from the producer and
then sells a range of products to the retailer who sells onto the final
customer. It is easier for the retailer to go to one wholesaler than to
many producers.
Advantages of using intermediaries Disadvantages of using intermediaries
 A producer can access many thousands of  Intermediaries want to make a profit so the
customers by selling to retailers that then price is increased at each stage. This makes the
distribute to their own stores, or by selling to final product more expensive that if the
wholesalers than then sell them on. producer sells directly to customers.
 The intermediaries help distribute products  By selling a product on to someone else, the
widely and can save the producers the costs of producer loses control. An intermediary can
trying to distribute direct to many different promote the product as they choose, the
customers in many different places. producer may not approve of their displays,
 By selling in other businesses stores, the descriptions or even their store layout.
producer enables the customers to compare
what is on offer.
60 Selecting the right In order to select the right channel of distribution, businesses need to
channel of think about the following:
distribution  Costs – what are the costs of distributing via other intermediaries
compared to selling directly?
 Lack of control – to what extent does this matter? Does the producer
want control over how the product is sold and displayed, particularly
for fashion brands, whereas for newspapers or mints the type of shop
does not matter.
 The product – convenience products like milk and bread will mean
that customers will not want to travel far for them and will go to the
nearest store. Selling through retailers can ensure a producers
products are widely available. Speciality items that customer do not
have to purchase often could be sold directly to the customer.
Many businesses will use a range of distribution channels. Using more
than one distribution channel may increase sales and reduce the risks if
there was ever a problem with one of the channels.
61 Importance of  Sales – if a product is not available when and where customers want
getting distribution it, they may buy something else instead.
right  Image – if a product is sold in the wrong place then it may damage
the brand and affect sales over time.
 Costs – how a product is distributed will affect costs and the final
price. The more intermediaries there are, the higher the final price
because all the firms involved want to make a profit.
62 Integrated nature of It is important to consider all four elements of the marketing mix
the marketing mix together when choose how to promote your product, or what price to
sell at, or how to get it to your customers. All four elements must give of
the same image of the product/brand.
37
6) Finance (paper two) 4 Influences on sources  Profitability of the business – a profitable business will be able to use
of finance retained profits. a profitable business will also be more likely to
(Established persuade a bank to agree to a loan as it should be able to make the
1 Why do businesses 1 Renting or buying a building – this might be a shop, an office or a
businesses) repayments.
need to raise finance factory and is likely to be relatively expensive.
(new businesses) 2 Vehicles – many businesses will require cars to visit customers and  Assets owned by the business – a business with a lot of assets may
suppliers, as well as vans or lorries to deliver products. choose to raise finance by selling the assets and leasing them back.
3 Advertising the business – potential customers will not know about a The business could also use them as collateral against a loan.
new business unless it promotes itself. Many new businesses spend  Past history and future prospects – a business that is expected to
quite large amounts of money on advertising, even before they start make a profit in the future may be in a strong position to take out a
trading. bank loan, as it is more likely to be able to pay back the loan on time.
4 Equipment and machinery for the business – most businesses Equally a business with a good record for paying loans on time may be
require some equipment or machinery, especially if they are planning in a better position to agree a bank loan or mortgage.
to manufacture products.  Legal structure of the business – only companies can sell shares; a
5 Inventories of raw materials – a shop will be inventories (stock) if it is public limited company can sell shares on the Stock Exchange.
to have anything to sell.  Amount of finance that has to be raised – if a business needs a large
2 Why do businesses  To expand – it is common for businesses to decide to increase the sum of money, it will use more than a single source of finance. A bank
need to raise finance scale of their enterprise, possibly by entering new markets or selling may not be willing to offer all of the finance required. Selling enough
(established more in existing markets. Businesses may need the finance to pay for shares to raise the finance may mean that the owners lose control of
businesses) additional shops, factories or offices, as well as to recruit new the business. Using several sources of finance helps a business to
employees. avoid the worst disadvantages of any one source of finance.
 To improve efficiency – businesses can raise money to spend on
training employees or to purchase technology to use in production,
these can help a business to product better quality products quicker
and with fewer resources. 5 Internal sources of Is money that is available from within the business.
 To develop new products – this is an important way for many firms to finance
compete, but it can be costly. To develop new products business may Finance Explanation Benefits Drawbacks
have to pay for scientific research or for new production facilities, as method
well as for advertising to inform customers. Owner’s Money put into the No need to pay interest Could have been invested
3 Influences on sources  The amount of personal fiancé available to the entrepreneur – the Funds business by the owner on the money elsewhere, earning a higher
of finance (new more personal finance an entrepreneur has, the less they have to profit
businesses) borrow. Some use redundancy pay they receive when they become Owner may not have enough
unemployed. In other circumstances they sell their homes to raise the funds to meet the needs of
funds. the business
 Legal structure of the business – only companies can sell shares; a Retained Money kept in the No need to pay interest Could have been invested
new business may be a private limited company. However, all Profits business by the owners on the money elsewhere, earning a higher
shareholders have to agree for this source to be used. profit
 How risky the new business is judged to be – if the business is Known as retained Can be available
The business may not have
deemed to be risky, banks may be unwilling to offer mortgage, loans profit on the balance immediately, so don’t
enough retained profit to
or overdrafts for fear of not being repaid. This means the sheet miss business
meet its needs
entrepreneur may need to use personal finance or sell shares. opportunities
Shareholders may become
unhappy if this means lower
dividend payments

38
 Selling Items owned by the The business is using The business has to have Family and Friends and family is a  Easy to arrange  May take a long time to
Assets business are sold and money it already has – something worth selling for friends popular source of  Often lent interest acquire all the finance –
the money made used so no need to take on this to be an option finance for new small free miss opportunities.
to finance the business loans or pay any businesses.  May not be able lend
interest or charges The business may sell enough money
something they later need  May require it back
Trade Credit Items are bought from Gives the business Can only be used to buy suddenly
suppliers on a ‘buy now more cash to use in the certain goods Hire An item is bought on  Flexible method –  High interest often charged
pay later’ basis immediate future
Bills usually have to be settled Purchase finance, repayments can hand back the  Item doesn’t belong to the
within 30,60 or 90 days are made each month item if no longer business until the end of
6 External sources of Refers to money that comes from outside the business. until the final payment required and the term
finance when the item becomes payment will stop
Finance Explanation Benefits Drawbacks the property of the firm
method Governmen Money given to the  No need to repay the  Limited funds are available
Bank Loan An amount of money is  Easy and quick to set  Interest payable
t Grants business by the grant  May be restrictions on the
government. usage of the money
borrowed from the up  If repayments cannot be
bank, then repaid (with  Large amounts of kept up, the business risks 7 Cash flow Is the money that flows into and out of a business on a day-to-day basis.
interest) over a set money can be getting a poor credit rating 8 Cash inflows Cash inflows mean that money flows into a business and becomes
period of time borrowed or being made bankrupt available to it. This could include:
 Structured
repayment term  Income from sales – the money business earn from selling goods and
Mortgage Long term loan  Only method  Large sums of interest services.
provided by a bank in available to buy charged  Loans from banks – this is when the loan is given to the business.
order to buy property property  Can take a long time to  Money invested by the business’s owners – when a new business is
 Structured repay debt started, the owner may invest personal finance, an established
repayments over a business may sell new shares.
long term (25 years)
Overdraft The bank allows the  Very quick to arrange  Only suitable for smaller 9 Cash outflows Is when a business makes a payment out of the business. This could
business to draw more  A good short term amounts and has to be include:
money from their bank solution to a cash repaid within a short
account than they flow problem amount of time
 Buying raw materials – most businesses need to buy raw materials,
actually have in it  Interest or charges are paid such as for a production line or for food in a restaurant.
Issuing A share in the business  No need to repay the  Need to pay the  Wages – these are higher particularly for businesses that provide a
Shares is sold to an individual money invested shareholders a share of service.
or another business.  Cheaper than a loan. future profits  Rent or mortgage – this could be for shops, factories or offices.
This money then used  Some businesses can  Ownership also means  Interest on loans – the bank gives a loan as cash inflow and then the
to purchase new assets raise large sums of some influence over how repayments become the outflow.
money this way the business is run – the
 Taxes – businesses may have to pay sales taxes and taxes on profits.
original owners may lose
 Advertising – this could be used to increase cash inflows.
control of the business
 Risky for the shareholder -
the investment may be lost
if the business fails
39
10 Why is cash flow Cash flow is important, because if a business does not have enough cash 15 Example of a cash flow
important? to pay its’ bills, it could fail.
December January February
A business that is unable to pay its suppliers will probably not receive Cash Inflows
any further supplies.
Personal savings 5,000
If it is unable to pay its workers, the business will probably stop trading. Bank loan 7,500
Sales revenue 3,800 6,000 8,800
Total Cash Inflow (A) 16,300 6,000 8,800
11 The benefits of  The business does not need to borrow and can avoid paying interest Cash Outflows
having a positive charges – many business use overdrafts to cover periods of cash flow Inventories (Stock) 8,000 4,250 3,900
cash flow difficulties, this can be expensive. Wages 4,000 3,500 3,700
 A business will be more able to arrange long-term finance – a
Interest on bank loan 250 250 250
positive cash flow position means banks will have greater confidence
that the business has the ability to may repayments on time. Rent (for three months) 4,250 - -
 Cash flow problems are a major cause of business failure – a positive Electricity & Gas 250 220 210
cash flow helps reduce the risk of a business failing. Total Cash Outflow (B) 16,750 8,220 8,060
Net Cash flow (C = A – B) (450) (2,220) 740
Opening Balance (D) 1,000 550 (1,670)
12 Interpreting cash You will be expected to interpret a cash flow forecast and possibly
Closing Balance (E = D + C) 550 (1,670) (930)
flow forecasts and advise on what actions could be taken to improve the cash flow
statements position.
16 The importance of  Managers can identify times when the business might be short of
13 Cash flow forecast Is a plan of the expected inflows and outflows to and from a business cash flow forecasts cash
over a period of time.  Managers can take suitable actions to avoid cash shortages becoming
a major problem.
 Cash inflows – money that comes into the business.
 Cash outflows – money that goes out of the business 17 The causes of cash  Poor management – managers may not be aware of the importance
 Net cash flow – net cash flow = inflows—outflows flow problems of managing cash flow and may not plan carefully. This is more likely
 Opening balance – is the money in held by the business at the start of in small businesses, which may not employ specialist finance
the month. managers. Even experienced finance managers may make decisions
 Closing balance – is the money held by the business at the end of the that weaken the cash flow position.
month and becomes the new opening balance.  The business is making a loss – a business makes a loss when over a
period of time its costs of production re greater than the revenue it
All negative figures are shown in brackets. receives from sales. A business making a loss will be at risk of running
out of cash at some point. This will occur because more cash is
flowing out of the business than in.
14 Cash flow statement Is a record of the cash inflows and outflows that took place over and  Offering customers too long to pay – this is known as trade credit.
earlier period of time. Managers may be too generous in offering customers trade credit,
especially if they are keen to increase the business’s sales. A business
may offer 60 days trade credit, but in the meantime it may be unable
to pay its own bills on time.

40
18 Solutions to cash  Reschedule payments – it may be possible for a business to agree
flow problems with it suppliers, or others to whom it owes money, to delay its
payments. If this gives the business sufficient time for the business to
receive inflows of cash, the problem may be solved. Alternatively a
business could persuade its customers to pay more quickly, thereby
speeding up cash inflows. This can be done by offering discounts for
early payments. Similarly customers that owe money could be chased
up and persuaded to pay promptly.
 Cut costs – this should result in reduced cash outflows. This could
mean employing fewer staff or holding smaller stocks of raw
materials. The business could also seek cheaper sources of fuel or raw
materials. However, this could result in lower quality and lead to the
business losing customers.
 Use overdrafts – is a short-term flexible loan that can provide the
business with the cash it needs. It can be arranged immediately.
However, it can be expensive and it used extensively could damage
their profits. Banks can also ask for an overdraft to be repaid
immediately.
 Find new source of cash inflows – a business may be able to generate
extra cash flows by diversifying the products/services they offer. E.g.
a pub could also offer accommodation. This could take time to
implement. A business could also advertise its products to generate
more sales. However, it costs the business money to advertise.
 Debt factoring – a business could sell the money owed by customers
to another company. This would ensure the business receives some
money. However, the business would not receive the full amount as
the debt factoring company would take a percentage.
19 Selecting the best The above solutions have disadvantages. Managers have to take these
solution into account when deciding how to tackle a cash flow problem. Two key
factors may influence the managers decisions on how to overcome cash
flow problems:
 The cause of the cash flow problem – if the problem is giving
customers too long to pay then reducing the amount of trade credit
would fix the problem. An overdraft would also fix the problem, but
the business would incur extra interest payments.
 The business’s circumstances – the above example could be a new
business in a new market. They need to persuade customers to shop
with them, so the trade credit is a good selling point. Reducing it
could cause customers to go to competitors. An overdraft in this case
would be better for the business.
20 The different Cash is entirely different from profit
between cash and
Profit is the extent to which a business’s revenue exceeds its total costs
profit
over some period of time. Profits can be paid to the owners of a
business as a reward for taking the risk of investing into the business.
Alternatively profits might be reinvested into the business.
Cash flow is the way in which money moves through the business. Cash
flow shows the balance between cash moving into and out of the
business. Cash is essential for all businesses to ensure that they can pay
debts on time.
Businesses can survive for some time without making a profits. However
if a business does not have enough cash to pay its bills, it is likely to be
forces to stop trading.
21 Revenue Is the income that a firm receives from selling its goods or services. It is
also referred to as ‘turnover’ it is measured by
Number of units sold X Price
E.g. if 200 units of a product are sold at £5 the revenue would be
200 x £5 = £1,000 (it is important to include the £ to get full marks)
22 Price Is the amount a business asks a customer to pay for a single product.
(see Marketing KM for more information on price)
23 Sales Refers to the number of products sold by a business over a period of
time. Sales is expressed in volume and revenue in monetary terms.
24 Costs Are the spending that is necessary to set up and run a business a
business normally has to main types of costs – fixed and variable
25 Variable Costs Are costs that change with output. E.g. if a café produces more
sandwiches, it will need more bread. Bread is therefore the variable
cost.
Total variable costs = variable costs of a single unit x number of units.
Total variable costs = £15 x 30,000 = £450,000
 Raw materials used in production
 Employee wages when paid based on what they produce
 Energy used in the production process
 Commission paid to sales people based on how much they sell
26 Fixed Costs Are costs that do not change with output. E.g. the rent of a building will
be fixed for a given period. The rent will not change regardless of how
much is being produced. This does not mean that fixed costs never
increase, but they do not change with output.
 Rent & business rates on factory and office premises
 Salaries of employees and management
 Insurance
 Advertising and other promotional campaigns
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27 Total Costs Fixed costs + variable costs 32 The average rate of Compares the average yearly profit from an investment with the cost of
return (ARR) the investment and is stated as a percentage. It helps a business decide
whether an investment is likely to be worthwhile.
ARR = average yearly profit x 100 ÷ cost of investment
For example, if a new delivery van costs £40,000, but increases a
business’s profits by £6,000 a year, the ARR would be calculated as
follows:

ARR = £6,000 x 100 ÷ £40,000 = 15%

To calculate the ARR of an overall project you would have to work out
the average yearly profit.

Step 1 – total profits ÷ number of years = average yearly profit.

Step 2 – ARR = (average yearly profit ÷ cost of investment) x 100
33 Interpreting the  A higher figure is preferred as it shows the return on the
results of an ARR investment is greater.
28 Profit and Loss = Revenue – total costs – if the costs are greater than the revenue this calculation  Managers will simply choose the investment which offers the
will result in a loss for the business. It is often measured over a given
highest percentage return.
period, normally a year. However it could be separated for each
 It assumes that profits are the sole factor influencing the
individual project.
decision.
29 Profit Measures the difference between the values of a business’s revenue
 Answer stated as a percentage makes it easy to compare with
and its total costs.
the returns from an alternate investment, such as holding the
30 Loss Is the amount by which a business’s costs are larger than its revenue
funds in a savings account.
from all sales.
 ARR are not always accurate, if the forecast for yearly profits is
31 Why do businesses Businesses need assets such as buildings, machinery and vehicles to
wrong.
invest? produce goods and services. They buy these assets to use in producing
 The profits could be made towards the end of the project, so
goods and services in the hope of making a profit.
businesses could be making a loss in the early years.
 Land and buildings – most businesses require land and buildings to be 34 Break-even Is the level of production at which a business’s total costs and revenue
able to supply goods and services. Businesses invest in additional land from sales are equal.
and buildings when they wish to expand production of existing goods
and services or to produce new ones.  If total revenues are greater that total costs – then the business will
 Machinery and vehicles – machinery is used by businesses that make a profit.
supply services as well as on manufacturers’ production lines.  If total revenues are less than total costs – the business will make a
Advances in technology mean that more productive machinery loss.
becomes available for most industries over time. Investing in such  If total revenues equal total costs – the business will break-even.
machinery can help businesses to become more competitive and
profitable. Similarly more efficient vehicles can help reduce a
business’s costs.
 New products – to remain competitive, businesses invest in
developing new products. In some industries such as computing,
software development and pharmaceuticals, continuous investment
is essential for a business to compete with its rivals.
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35 Break even chart Shows a business’s costs and revenues and the level of production
needed to break even.
Made up of four lines
 Fixed costs
 Variable costs
 Total costs
 Total revenue

36 The level of break- Break-even output occurs when the total costs of production equal the
even output revenue from sales. In a break-even chart, this occurs at the level of
production at which the total costs line intersects the total revenue line.
 Levels of output below break-even – at these levels of production,
total costs will be greater than total revenue. Business makes a loss.
 Levels of output above break-even – at these higher levels of
production, total revenue will be higher than total costs. Business
makes a profit.
Business makes a profit if it produces and sells more than 500 units.
37 Margin of safety Measures the amount by which a business’s current level of production
exceeds its break-even level of output.
Having a margin of safety can be reassuring for the managers of a
business. It means that sales and production can fall significantly before
the business is at risk of making a loss.
The advantages of using break-even analysis The disadvantages of using break-even analysis
 Help managers to see the effects of any  It assumes that a business sells all of the output
changes in costs – a rise in costs will increase it produces. This is unlikely, even for a well-
the level of output and sales a business will known business. Break-even charts are much
need to break-even. It will also reduce or greater value to managers if supported by
eliminate the margin of safety. A fall in costs market research showing that future sales will
will have the opposite effect. match production levels.
 Show the effects of changes in price  Many businesses operate in markets where
 Banks are more likely to provide finance if the costs and prices change rapidly and frequently.
business and provide evidence of planning This makes break-even charts of less value as
future finances. they are inaccurate almost as soon as they are
prepared.
38 Why businesses Two of the most important financial statements prepared by businesses
prepare financial are the income statement and the balance sheet. Businesses need to
statements prepare these financial statements for a number of reasons.
 The law – publishing financial statements in the UK is a legal
requirement under the Companies Acts. If a business fails to prepare
these statements in the agreed format, it may be fined, or in extreme
cases, forced to cease trading. Sole traders and partnerships do not
have to follow the same rules.
 To help the business’s managers make decisions – they assist the
managers in mangers in making decisions on how to improve the
business’s performance. E.g. if the business’s profits were lower than

43
 expected, the mangers might take action to improve profitability, 41 Balance sheet Sets out the assets and liabilities that a business has on a particular day
possibly by raising prices. (snapshot in time). It shows where a business’s finance has come from
 To guide investors – people and others businesses that are planning and how the business has spent the money that it has raised.
to invest money into a business will gain a lot of information from its 42 Assets An asset is anything that is owned by a business. Assets can be divided
income statement and its balance sheet. This will help them judge into different types:
how safe the investment is and whether the investment will earn a
 Non-current assets – a business will normally keep this type of asset
profit.
for more than 12 months. Non-current assets include: shops, vehicles,
39 Income statement An income statement shows three key pieces of information for a
machinery and land. Non-current assets create revenue for the
business over a period of trading, normally one year:
business and enable it to earn profits.
 The revenue earned by the business  Current assets – these are assets that the business only expects to
 The costs of production that have been paid by the business have for less than 12 months. Current assets include: cash,
 The amount of profit earned by the business or the loss it has made. inventories (stock)
40 Components of an  Revenue – this is income received by a business from the sale of its 43 Liabilities Liabilities are the amounts owed by a business to other businesses and
Income statement goods and services over the period of time covered by the income individuals.
statement.
 Non-current liabilities – are debts that will be paid back over many
 Cost of sales – these are the costs involved in directly supplying the
years. These include mortgages.
good or service. They include: the wages of employees directly
 Current liabilities – are debts that a business will pay back within a
involved in the production, transport and selling of the products, the
year. These include money owed to suppliers and the tax the business
buying of the products that are sold in the shops, buying the raw
has to pay.
materials which are used in production. Energy costs directly used in
production. 44 Total equity Is the part of the company’s money that belongs to shareholders. If a
company stops trading and sells all its non-current and current assets, it
 Gross profit = revenue – cost of sales
would normally leave a large sum of money remaining. This would be
 Overheads – These are costs that do not alter when the level of
used to pay all the companies liabilities (debts)
production changes. They are sometimes called ‘expenses’.
45 Balancing assets and A balance sheet gets its name because the two parts of the document
Overheads include: Salaries of managers, Insurance costs, Interest on
equity will equal each other. The value of the assets owned by the business
loans and Cost of maintaining buildings
(once it has paid its liabilities) is called “net assets employed” this will
 Operating profit = gross profit – overheads
exactly equal the amount of money put into the business by the
 Net profit = operating profit – taxes and interest payments. Net profit
Revenue company’s shareholders which is called total equity.
is a good measure of the performance of a business.
Minus Net assets = total equity
Cost of sales
If the shareholders of a business raised extra finance to buy new
Gives This Year Last Year
vehicles, then the value of the business’s non-current assets and the
Gross profit £ £
shareholders total equity will increase by the same amount.
Minus Sales revenue 940,200 939,125
Overheads Cost of sales 438,130 434,050 Net assets = Total equity
Gives £3,975,000 £3,975,000
Operating profit Gross profit 502,070 505,075 + +
Minus Overheads 225,500 247,925 New vehicles New funds raised by shareholders
Tax and interest Operating profit 276,570 257,150 £125,000 £125,000
Gives Tax and interest payments 98,425 101,100 = =
Net profit Net profit 178,145 156,050 New net assets = New total equity
£4,100,000 £4,100,000

44
46 Example of balance 47 How to interpret A business’s stakeholders such as managers, suppliers and owners will
sheet Balance Sheet at 31
st 2013 2014 financial statements be very interested in the information that is set out in its balance sheets
December and income statements. They may look for trends in profits to see if the
£'000 £'000
business is making higher levels of profit than in previous years.
Plus: Non-Current Assets
They may consider the figure for ‘net assets employed’ to see if the
Non-current Goodwill and other intangible
150 150 value of the business has increased over time.
assets assets
+ Property, plant & equipment 2,450 2,100 To make better judgements about business’ performances, it is
Current assets important to compare a profit figure to something else to understand
2,600 2,250
- how successful the business has been. There are a number of
Current liabilities Plus: Current Assets comparisons that can be made:
- Inventories 1,325 1,475
 A comparison with previous years – key indicators for a business’s
Non-current Trade & other receivables 4,030 3,800 performance over time from its income statement are: the revenue
liabilities Short-term investments 250 190 from sales of goods and services and gross and net profits. a business
= may have sales that are less than a previous year, but could have
Cash & cash equivalents 1340 780
Net assets reduced its overheads so profits could still increase.
= 6,945 6,245
 A comparison with the performance of competitors – if a business
Total equity Less: Current Liabilities can increase its revenues and profits more quickly that others in the
Trade & other payables 2,310 2,225 same industry, it is a good sign that the business is performing
Short-term borrowings 350 550 strongly in financial terms.
Current tax liabilities 800 650  Using profit ratios – there is internal data that can be used to
compare a business’s financial performance. These can be used to
Provisions 290 255 calculate financial ratios, gross profit margin and net profit margin.
3,750 3,680
48 Gross profit margin This profit ratio compares a business’s gross profit with the revenue
Less: Non-Current Liabilities figure for the same year.
Borrowings 1,200 1,450
Provisions 140 140
1,340 1,590
A gross profit margin of 25% means that 25p in each £1 of revenue is
gross profit. Is 25% a good figure for a gross profit margin? This can only
Net Assets 4,455 3,225 be answered by comparing the figure to one of the following:

Equity  The business’s target for tis gross profit margin.

 The business’s gross profit margin from earlier years.
Share capital 500 500
 The gross profit of other similar businesses.
Retained earnings 3,955 2,725
Total Equity 4,455 3,225

45
49 Net profit margin This profit ratio compares a business’s net profit with the revenue figure make a better judgement of a business’s performance. A rise
for the same year. in profits is a good sign for a business, if the business also has
a rise in its net profit margin, this shows that the business is
being run more efficiently. If a business revenue and profits
are rising over time, it provide evidence that the business’s
performance is improving, this is especially true if the
The net profit margin can be a better indicator of a business’s financial
performance of competitors over the same time period has
performance as its calculation included all the costs paid by a business.
not improved.
Is 10% a good figure for a net profit? As with gross profit it needs to be
 Helping managers to make effective decisions – financial
compared with:
documents help managers make better decisions. They may
be able to uncover the reasons for falling profits and take
 The business’s target for its gross profit margin.
appropriate action to improve the situation. The income
 The business’s gross profit margin from earlier years. statement will show whether costs have increased, whether it
 The gross profit of other similar businesses. be costs of sales, or overheads or both. Managers can take
decisions to cut costs. Alternatively it may be a fall in sales
50 Judging financial  Shareholders and owners – they will be concerned because that has caused the decline in profits. Managers can take
performance from profit is the reward to the business owners and dividends for decisions to increase advertising to provide a boost in sales.
the view of different shareholders. The income statement provide vital information 52 Formulae You will not be given any formulae in the exam – so you must
stakeholders on: the levels of sales achieved, the costs the business has had
learn them
to pay and the amount of profit or loss that has been made. In
addition, a balance sheet can show whether the value of the
business has increased. If the value has increased greater than
that of a competitor, shareholders will be happy and may be
willing to invest more money into the business.
 Managers – use the financial statements to judge whether
their decisions are effective. The balance sheet can show how
much the business is borrowing; this can help decide on future
sources of finance or judge whether borrowing is too high.
 Suppliers – these will guide a supplier on whether it is likely to
be paid in the future. A business that is recording a large loss
may not be able to pay for supplies.
 Employees – for businesses that operate profit sharing
schemes, employees will want to see what level of profits a
business is making. It can also guide employees regarding job
security. A business that records a substantial loss on its
income statement may seek to cut costs to improve its
performance. This might mean that is employs fewer people
and that some employees lose their jobs.

51 The importance of  Assessing business performance – financial documents allow

financial statements managers and other stakeholders to conduct ratio analysis. By
comparing two pieces of financial information, it is possible to

46
Exam Skills
1 Exams Paper 1 Paper 2
 1 hour 45 minutes long  1 hour 45 minutes long
 Worth 90 marks  Worth 90 marks
 50% of total GCSE  50% of total GCSE
 Topics 1,2,3 and 4 are covered  Topics 1,2,5 and 6 are covered
In both papers there will be three sections
 Section A – is a mixture of MCQ and short answer questions and is
worth 20 marks.
 Section B and C – are both based around a case study. Which could
include some data? You will have to answer a mixture of short and
long questions related to the information in the case study.
2 Assessment AO1 Knowledge  This skill is about recalling, selecting and
Objectives communicating.
 You need to show that you have got a really
good understanding of the facts and that you
can use appropriate business terms, e.g. sole
trader, supply chain, limited liability
AO2 Application  This skill is all about applying what you know
to different situations.
 Make sure your answer is relevant to the
situation being described.
 For example – an exam question might tell you
about a sole trader who wants to buy a new
piece of equipment and ask you to suggest
how they could raise finance. Here, you would
not want to suggest that the company issue
more shares (since only a limited company can
have shares and sole traders are unlimited).
This would mean although the knowledge is
correct, it have not been applied correctly and
so no marks would be given.
AO3 Analysis  This skill is all about using evidence to make
and judgements and reach conclusions.
Evaluation  For example if you recommend that a business
raise money using a mortgage rather than an
overdraft, you need to explain why using what
you know about finance.
 Your ideas need to be structured in a logical
way so that your arguments make sense.
 Often these questions will not have a right
answer. The important thing is using evidence
from the question and case study to support
your conclusion.
3 Command words Assessment Command What to do
Objective Word
AO1 Identify, List, These words ask for a statement. You
State, Give do not need to back it up with
evidence.
AO1 Describe, What is These words want you to demonstrate
meant by, Define your knowledge, a suitable example,
maybe form the case study would be
needed to acquire the second mark.
AO1 & AO2 Explain This means you need to give reasons
for things. You need to show that you
understand the connection between
things that happen in the world and
the effects they have on businesses.
AO2 & 3 Analyse Separate the information into its
components and explain their
characteristics and their relationship
to the context. Draw on the
knowledge and understanding from
the specification that underpins the
question.
AO2 & 3 Advise or Present the key points about
Recommend different ideas or strengths and
weaknesses of an idea.
Make a choice from those given and
use evidence from the information
provided in the item to support that
choice.
AO2 & 3 Evaluate You should discuss both sides of an
issue. You should finish you answer
with a conclusion giving your overall
judgement.
AO 1, 2 & 3 Calculate Use the given material to carry out a
calculation. Remember to show your
working.
AO2 & 3 Give reasons for This means you need to include lots of
your answer points and explain why they are
relevant to your answer. Link you ideas
together to build a balanced
argument.
AO2 & 3 Use evidence to This means you need to pick out
support your specific information from a case study
answer or piece of data that you have been
given, in order to back up your answer
47
4 Example of Knowledge Area – Delayering  This is important because
command words Any Section What is meant by (or Knowledge only –  This is significant because
define) delayering AO1 (1-3 marks)
Sections B and C Explain one benefit to Knowledge applied to
the business of the context –
delayering AO2 (2-4 marks)
Examples of mark schemes for a range of different marks
Sections B and C Analyse the possible Analysis of the
benefit to the knowledge applied to
business of delayering the context –
AO3 (6 marks)
Sections B and C Recommend whether Judgement based on
the business should analysis of the
use delayering to knowledge applied to
reorganise the the context –
workforce AO3 (9 or 12 marks)
5 Case study  For questions that are based on case study information or on data,
make sure, you use evidence from the case study or data set as well
as your knowledge of Business in your exams.
 For questions using analyse or recommend command word, there will
usually be advantages and disadvantages of a situation to think about
to get all the marks.
 Before you get started on your answer, read the case study and any
data all the way through. Then read the whole question carefully and
make sure you have understood what you are being asked to do.
 It is important the you remember the context of the question and the
case study – if your business is a sole trader, you answer must be
relevant to a sole trader and not to a well-established private limited
company.
6 Calculation  In your exams, you will have to do some maths – e.g. do some
questions (10% of calculations using financial data, or interpret a graph.
paper)  For calculation questions always make sure you show your working –
even if you final answer is wrong you could still get some marks if
your method was correct.
 Make sure you give your answer in the correct units £,% etc or to the
correct decimal places asked for.
 Make sure you have a calculator with you in lessons and the exam.
7 Connectives It is important to use the correct terminology to link your arguments
 Because
 This will mean that
 This is likely to lead to
 As a result
 Although this will depend on
 The impact would be
 This will mean that
 A consequence of this might be that

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Blue Box Tasks

Business in the Real World

The Big Picture – This is the fundamentals of why someone has a desire to start a business and explores the key concepts
that any potential businessperson must consider before taking the steps to become an entrepreneur. The topics studied
in this section will be interleaved into the two papers and therefore form part of the core element of this GCSE
qualification.
Self-Directed Learning – Research current topics gathering examples of different types of businesses to use in exams,
Revision showcase. Sophistication – Read national and local newspaper articles about different types of businesses (case
studies). Listen to Manchester Business Radio. Watch Dragons Den. Make resources to support learning in the classroom
Confidence and Leadership Opportunities – Enter the Manchester Airport Enterprise Competition. Develop your own
business ideas.
What do experts do? – Become entrepreneurs, joins existing companies or become self-employed.
British Values and SMSC
1 - Citizens can influence decision-making through the democratic process.
4 - Acquire a broad general knowledge of and respect for public institutions and services in England

Influences on Business
The Big Picture – A world where everything goes to plan would be dull and thus it is important for any businessperson to
analyse the potential influences on business be they positive or negative. This unit focuses on external influences and
demonstrates the potential steps that may be to be taken to counter the influences. This topic will be interleaved
throughout the two papers of this GCSE qualification.
Self-Directed Learning – Research current topics gathering examples of different types of businesses to use in exams,
Revision showcase. Sophistication – Read national and local newspaper articles about different issues which affect
businesses (case studies). Listen to Manchester Business Radio. Watch Dragons Den and The Apprentice. Make
resources to support learning in the classroom
Confidence and Leadership Opportunities – Enter the Manchester Airport Enterprise Competition. Develop your own
business ideas.
What do experts do? – Become business consultants, advising on business risk, a business journalist
British Values and SMSC
6 - Importance of identifying and combatting discrimination.
5 – Further tolerance and harmony between different cultural traditions and acquire an appreciation of and respect
for all cultures

Business Operations
The Big Picture – You have an idea, you have considered the influences on your business. Now you need to consider how
you produce your product efficiently and at a cost which delivers quality and is sustainable for your business.
Self-Directed Learning – Research current topics gathering examples of different types of operations that business
conduct to use in exams, Revision showcase. Sophistication – Read national and local newspaper articles about different
types of operations that businesses conduct (case studies). Listen to Manchester Business Radio. Watch Dragons Den
and The Apprentice, How do they make it? Make resources to support learning in the classroom
Confidence and Leadership Opportunities – Enter the Manchester Airport Enterprise Competition. Develop your own
business ideas.
What do experts do? – Become operations managers at firms, develop new technologies for production methods or
become a consultant for other firms.
British Values and SMSC
4 - The freedom to choose and hold other faiths and beliefs is protected in law
1 - Develop self-knowledge, self-esteem and self-confidence

59
Human Resources
The Big Picture – If your business is labour intensive, this unit will help guide you in deciding how you should structure
your organisation the most effective ways to motivate your workforce and look and more creative ways of recruiting
suitable employees.
Self-Directed Learning – Research current topics gathering examples of different types of businesses to use in exams,
Revision showcase. Sophistication – Read national and local newspaper articles looking at job adverts, articles about
workforce(case studies). Listen to Manchester Business Radio. Watch Dragons Den and The Apprentice. Make resources
to support learning in the classroom
Confidence and Leadership Opportunities – Enter the Manchester Airport Enterprise Competition. Develop your own
business ideas.
What do experts do? – Work in Human Resources in large companies, set up a HR consultancy firms.
British Values and SMSC
2 - Living under the rule of law protects individual citizens and is essential for their wellbeing and safety
2 - Distinguish right from wrong and to respect the civil and criminal law of England

Marketing
The Big Picture – Ever wondered why an advert is like it is or why the price of your favourite product changes? This unit
answers all those questions and perhaps is one of the most relevant in making you a more perceptive consumer.
Self-Directed Learning – Research current topics gathering examples of different types of marketing campaigns and
conduct market research that can give you greater understanding in exams, Revision showcase.
Sophistication – Read national and local newspaper articles about different marketing campaigns (case studies). Listen
to Manchester Business Radio and adverts on other radio shows. Watch Dragons Den and The Apprentice adverts on
other TV channels. Make resources to support learning in the classroom
Confidence and Leadership Opportunities – Enter the Manchester Airport Enterprise Competition. Develop your own
business ideas.
What do experts do? – Start own marketing company, join a marketing department of a firm or be a consultant for other
companies.
British Values and SMSC
6 - Importance of identifying and combatting discrimination
1 - Develop self-knowledge, self-esteem and self-confidence

Finance
The Big Picture – No-good at Maths? Do not worry, this unit will reignite your love of numbers and allow you to count all
the money you make from your business idea whilst choosing suitable sources of finance to help you along the way.
Self-Directed Learning – Research current topics gathering examples of different types of financial documents used by
business, Revision showcase. Sophistication – Read national and local newspaper articles about financial matters, which
affect businesses (case studies). Listen to Manchester Business Radio, The Martin Lewis Money Show and Wake up to
Money (Radio5). Watch Dragons Den and The Apprentice. Make resources to support learning in the classroom
Confidence and Leadership Opportunities – Enter the Manchester Airport Enterprise Competition. Develop your own
business ideas.
What do experts do? – Become an accountant or finance planner, join a finance department of an existing firm, start
your own business and be able to do the finance side of the business.

British Values and SMSC

6 - Importance of identifying and combatting discrimination.
1 - Develop self-knowledge, self-esteem and self-confidence

60