What is Applied Business? you through the course.

It also helps prepare you for

Applied Business is all about nrnking it real. In this
course you" ill see hov, businesses work - for real.
\i\ hether y u w-ant to set up) our own business
one dn or intend to '" ork for someone else, the
information ) ou will gain completing this course
will prove es ential. So that you can get the best
possible insight into how business are run, you
should have the opportunity to get some direct
experience
of them. This could be gained through work
experience, a visit, presentations or guest speakers.
Applied Business is a double award GCSE, so you
\\ill gain two GCSEs on the completion of the
course and you will have a combination of
examination and conrrolled assessment units to
complete.
What is this book about?
This book covers all the units required for the AQA
GCSE Applied Business double award. You will want
to achieve a good GCSE Applied Business grade
and this book has been written to support your
learning. This book provides you with clear, concise
explanations, descriptions and examples to support
your Controlled Assessment by providing Re earch
folder features, which looks like this:
Pay carefully attention to these boxes in Units 4, 5
and 6 as these will help you to prepare and build up
the necessary skills you need for the research and
analysis phase.
About the course
You will need to complete four out of five units,
and there are two compulsory units that you must
complete. These are:
Unit 1: Setting up a business. This is worth 20%
of the overall course and is assessed in a one-hour
exam worth 60 marks.
Unit 7: Business finance. This is also assessed in a
one-hour exam and is worth 20% of the course. It is
out of 60 marks.
The other two units that you have to complete
are chosen from the three blocks in the middle
of
diagram above and are worth 30% each. This means
the Controlled Assessment will be worth 60% of the
total course:

Nnit 4 People in
business
Controlled Assessment
70 marks/30%

Unit 1 Setting up a Unit 7 Business

Unit 5 Marketing and finance
business plus
GCSE Applied customer needs
Written paper (l hour) - plus
Business - two of Controlled Assessment
(Double Award) 60 marks/20% the 70 marks/30%
following
Unit 6 Enterprise
Controlled Assessment
70 marks/30%
 Whot ore the Controlled Assessment Units
in l \\:hw.: about?
t', •"' i "·t nwrneeI
\.. Unit 4: People In busine s

, I ',,
·Hlinf nn 't \l of th, tW< unii-s Unit 4 is about whal i1- i · Ilk· working in an
,\\ yyou orguniiwt:ion. You will find u1 how busincs.c
organise and motivate th people who work in the
. Thi will m •nn y ur.
f th, tln '' l 'low.
ursc could
You will study th roles of manager, su ervi or an:·
operative. You will also be a lc to _co_ns1der your

t:tit \IP o bm in . s JJotential as an em p. lo.yee by 1dent1fymg your own

personal charactenst1cs.
h ur exam
+ Unit 5: Marketing and customer needs
in busin s
d A. essment Unit 5 guides you through investigating how
+ businesses use marketing activities to meet
customers' needs and deals with competition at the
nit 6 Enterprise
Controlled Assessment same time. You will see how important it is to get to
+ know customers so that they can be best served by
the business; and buy lots in return. This unit will
Unit 7 Business finance
_Q% One hour exam
also reveal some marketing techniques which are
used on you too!

Unit 1 Setting up a business Unit 6: Enterprise

20% One hour exam
Unit 6 looks at developing and exploring the
+ features linked with being enterprising and an
Unit 5 Marketing and
entrepreneur. You do this by planning, carrying out
customer needs
30% Controlled Assessment
and evaluating an enterprise. This is ideal for those
of you who enjoy being hands on and gives you the
chance to set up a business yourself.
Unit 6 Enterprise
30% Controlled Assessment
Remember you only need to study two of
+ these three.
Unit 7 Business finance For the optional units you have chosen you will be
20% One hour exam assessed using Controlled Assessment. This is similar
to completing coursework, but the main difference
Unit 1 Setting up a business is that you have a limited amount of time to gather
2()0/o One hour exam evidence to include in your portfolio and then
+ limited time again to write up your findings.
Unit 4 People in business Remember, it is the skills you possess that are
300/4 Controlled Assessment being tested, not the quantity that you put into the
+ portfolio.
Unit 5 Marketing and Once you have selected the pieces of information
customer needs
30% Controlled Assessment
that you have obtained you then need to
demonstrate sufficient skills in analysing and
+ evaluating them.
Unit 7 Business finance
20% One hour exam There are more details about Controlled Assessments
in the individual unit introductions.
 ■ Introduction
ln nit l 1 E E usin 'Ss ,"l u lies ou will study m iny of
..._

th issue im h . in starting tq :t busin 'Ss. o-prnling IL and

the
1 as n· · r :u es or fnilut . Th 'S '.\ issues in lucl ·:
wh, tit mean to b an ntrc1reneur and where new business
iden om f1 m'
h, , a business is set up and the aims that are commonly
set the legal structure of small businesses
ho\\ mvners of small businesses market their goods or services
,vhere finance comes from for setting up a business
how to manage workers in a small firm
, hy customer service is important and how products can be
made.
You will also be introduced to four entrepreneurs who will
appear throughout to illustrate some of the key points in Unit 1.
The focus of this Unit is very much on the early stages of
business start-up and therefore on small- to medium-sized
businesses operating in national markets. You will also have
the opportunity to explore real-life case studies based on newly
created businesses operating in the UK today.
Unit 1 is divided into five chapters:

Chapter 1 Starting a business

You will study what it means to be an entrepreneur and
understand the concept of 'enterprise'. You will begin to
appreciate some of the risks and rewards associated with
running your own business, and will look at some of the
decisions that entrepreneurs need to make when setting up
their business, such as the legal structure for their business,
identifying its stakeholders and choosing where to locate the
business. You will also begin to appreciate some of the tools
that assist entrepreneurs in making these decisions - the setting
of objectives and the development of a business plan.

Chapter 2 Marketing
This chapter will give you an introduction to marketing within
a business with a limited budget to spend. You will discover
that marketing is much more than just 'selling'. Research into
the market will help to make the business successful - different
approaches to marketing will be successful with different
goods
and services. One of the common themes in marketing decisions
taken by many small businesses today is the importance of ICT.
thimJ rttrnof finnnc ton new
h - lh I t "r nlI )Ok tll sourc s of finnncc and
,ix "h'tl s tting u1 n smnll business.

- "ll .. n I m, U.:cd to di:cussin, financinl terms such as

.sh w fo1 '\. t'and th-r k y terms identified in this chapter.

People in business
- u in ss needs ·mneone to work in it! Sometimes the owner
· small businesses need to recruit workers.
en. U2 1 ut vet") often
'\n le have been employed they need to be motivated to
· - w-ell. The ovmers will also want to keep - or retain - the good
and hm" they might do this is also explained.

Chapter 5 Operations management

Fi ally you will be introduced to the importance of operational
ecis·:ons in managing a successful small business - how goods
can be made as efficiently as possible; how customers can be
ro-i;ided with good service and the increasing importance of ICT
· informing and supporting customers.

■ Meet the entrepreneurs

Here are the four entrepreneurs who will appear in your text at
various points to illustrate some of the key ideas and theories.

Nilesh Ania
Decorates the homes of Began gardening when she was five
elderly and vufnerable
years old, helping her grandfather on
members of the community.
his allotment.
Has worked in decorating for over
20 years.
Has a degree in horticulture.
Ww..s alone. Set up her gardening business in 2005 using
her own equipment in order to be her own
Has .an e>'.cef lent reputation for boss.
good quality work.
Runs courses in growing vegetables this year for
Wants to help others. local school children.
Possesses excellent vocational skills, Has very good work-related skills, is very organised and likes
sound communication skills and attention to plan ahead.
to detail.

Alex
Minseung
Develops websites from home.
Is currently studying for her
Began business whilst studying ICT at sixth GCSEs.
form college to earn money from hobby.
Earns money walking her
Has over two hundred customers across UK. neighbours dogs at the
Wants to launch a website- hosting service weel<ends and after school to
next year. help fund her studies.
Spends his leisure time writing computer games. Loves listening to music and hopes to study
Alex is very creative and loves coming up with new ideas. Performing Arts at college.
He also has worked hard on developing his technical skills. Minseung is caring and ambitious.
 In rodu ti n
In' 00 ii ·,: r ·1on • I by 'J'/1, Tim•., 11 ell. mnll bu.,in, r: own ·r.
( "'Ill r J r n urs ;ir' wonh ·I ,04 billion 10th· UK ·onomy, j . t
in L rm of th hours 1h y work. In 2008, th m ··of fa ional
't Lisli·s ( N ) r ·gist r ··I c1 3 p r ·cnt in ·r·,1.·· in th· numb r
fl usin SS"'S r gisl r cl in Lh UK. fn real l rms, thi mcrrn. an
in r c1s fr m 2.J0 million busincssc · to 2.16 million bu in- ·.
ON figur s also si-mc thal 89 per ccnl of all busin e hav J
than ten employ cs and 32 per cent of businesses were le han
four years old. So the importance of small- and medium-sized
businesses to the UK economy cannot be overstated.
When you consider the significance of small.- and medium-sized
enterprise, you will appreciate why it is vital that you come to
understand the key ideas and theories that surround business
enterprise.
In Chapter 1 you will learn about the following areas:

Enterprise: the ability to Business

handle uncertainty and recognise objectives: clearly
change. defined targets
for
a business
to achieve
over a
Business structure: certain time
the way jobs, period.
responsibilities and ---._ Starting a
power are organised business
within a business.

I
Business plan: a
statement showing
how a business sets
Business location: the place (realor out to achieve its
virtual) in which the business aims and
operates. objectives.
En erprise: what is business?

■ \fl U Ill
u, in · ·mi.':Hi<n th:11i ,, up to provicl'goods ors rvi ··.
;,_,th, 1 ul li .mn•rnm 'flt oroth -r busin ·sscs.
thi in n.'turn for mon 'Y, with the ovcrnll ;_1irn of
; 1th o( th' \\'11'rs.
.1 1 r )( diff 1 nt t) 1, of business: those that arc run
111
:i1 l I ei,-on: th 'th;it nre run by two or more partners;
3 ,,11 d by 'shar hol lers' (a term you will learn more Business: an activity that requires the o
-): 3 rh - thm are run for a range of reasons, whether to Entrepreneur: an individual with an idea
r _im1ly to help others. In this Unit you will learn about
f u-inesses.

■ Why start a business?

e are a ,-ariet) of reasons why people start their own businesses -
outlined in Diagram A.

to ursue an interest
or a hobby to be their own boss

to escape an
uninteresting job
to make the most of
a business
opportunity (see
pages 14-15)
to use new technology or
ideas for making a
product

to provide a service or product that

to work from home benefits others to have a big business
(see social one day
enterprise)
....,,,,;,..._
fJ Reasons for starting f:J business

Individuals who start their own businesses nre known ns

entrepreneurs. So whc1t docs it take to be an cnlrcpreneur'? H,1vc
another look at the entrepreneurs t hnt you me1- in the UniI opener in
'Meet the entrepreneurs'. Docs anything abouL them surprise you'?
 Chapter 1 Starting a business 13

What is social enterprise?

Enteq rise is al out using ideas nnd rclntccl aci-ivities to gain n reword
su·h n. 11 fit th money you cnrn when your income is higher than Social enterprise: an activity that achiev

ur srs . How v r. for som, 'ntreprcncurs profit is not enough

motivnrion top rsund them to tnke th risk and put in pince the
n cessary res urc s to carry out the activity. Some entrepreneurs need
other moth, tion, such ns the belief that they are doing something for
their community or for the good of others in society, or even the
world! These people are knm, n as 'social entrepreneurs' and they are
involved in social enterprise.
Nilesh, who you read about in the unit opener, is an example of a
social entrepreneur. He felt the need to do something for the elderly
in his community as well as earn some money, so he combined his
skills as a decorator with this motivation to set up his decorating
business.

'' In my view, social enterprise is the new British business success story,
forging a new frontier of enterprise-a quiet revolution involving 55,000 . .A
social enterprises in our country from the smallest community groups to m Nilesh is a social entrepreneur
larger businesses. ,,
Gordon Brown, then Chancellor of the Exchequer, 75 November 2006 tG®ii1a
l'J According to www.startups.
co.uk the top five business
Fifteen
heroes in the UK are:
Award winning chef Jamie Oliver set up his restaurant Fifteen in 2002 to provide disadvantaged young people with
■ Richard Branson
■ Steve Jobs
■ Anita Roddick
■ Stavros
■ Duncan Bannatyne
Try to find out about these
entrepreneurs and their
inspiration for starting up
D What motivated Jamie Oliver to set up his restaurant business Fifteen? businesses.
fJ What makes this an example of social enterprise?
OD links
Read about young entrepreneurs at
Business is all about people making ideas happen to achieve a range www.youngbizuk.co.uk
of rewards, not just for themselves but also for others. However, there Find out why Anita Roddick set up
is always a risk as well as a reward attached to every idea. The Body Shop at
www.youtube.com (search for
'Anita Roddick interview').
D Review the reasons for setting up a business. What reasons
would you have for setting up in business? Would you want to help AO..a Examiner's tip
others with your business? When writing about enterprise In the exam

Review the entrepreneurs you read about in the unit opener.

II Why did these people want to start a business?

El What resources would each entrepreneur need?
Finding a gap in the market

■ Business opportunities
faery busin s, b-gins with an opportun.ily .identified by till inclivi lu;il
r a -roup of people. I·or most entrepreneurs this opportunity is;1 w,1y
f making m ney for themselves by producing a product or providing
as rvi , and by finding a gap in the market. However, for soci<il
ntrep1 neurs this may be also a way of helping or providing for ap in th m, rh:t: a bu inP..:;:; opp rtunity
others.
Howe, er:, it is not enough to provide the same product or service tl1c1t
other businesses are offering; after all why would customers choose
your business? What some businesses do is to make themselves
different to the competition in some way, such as by providing
excellent customer service. Another alternative is to identify a new
idea and then turn this into a business opportunity by organising the
resources required. Of course, one of the greatest challenges is finding
that new idea.

■ Market observation
Leaming from the world around them is an important way
entrepreneurs identify new business ideas. They watch what happens
between existing businesses and their customers and try to identify
ways they could do the same thing slightly differently or better.
They might also look at investing in existing business ideas, such as
franchises (see pages 16-17), where an existing business has an idea
but has decided to expand by inviting others to invest in their business.
Entreprerieurs can employ creative-thinking techniques to identify
new ideas. They may take an existing product or service and
try and look at it in different ways. Gi.i puddings that we
now see on the shelves of all the major UK supermarkets
came about because James Averdeick, Gi.i's founder,
spent some time in Belgium enjoying the chocolate
from his local bakery, so much so he believed that
chocolate lovers in the UK 'needed' to enjoy puddings
of a similar quality. Gi.i chocolate puddings were
launched in the UK in 2003. Its website estimates that a
Gi.i pudding is eaten somewhere in the world every
two seconds.

D Working in small groups, choose an everyday product with which

you are all familiar and think about ways it could be improved. ..A...
ffl ii pu I ill)
fJ Identify an everyday product or service with which you are familiar.
Identify a number of companies that sell it. How do they make
themselves different from each other to win our custom?
 ■ Market mapping Chapter 1 Starting a business 15

Mnrk"t mn1 pin is on,e,ay in which husin ss cnn find 'gnps' in th,
market- in other words, id ntifv busin ss 01 portuniti 'S that me not
CD links
cutTentl) h ing pursw'd.) u need to id 'ntify the key nuribute or Think of some business ideas
vnriabl' of similar products ors rvic s in their mark l. For cxnmplc, using a range of creative-thinking
for shoes this mny b price nnd purpose. Pcopl - tend to buy shoes games. Search for 'creative thinking
according t th" purpos they serve and the price that is being activities and games' at:
charged. You t11 n c nstruct n two-dimensional diagram plotting all www.google.com
the current mak s of shoe on the mnrket in relation to the
characteristics. Jimmy Choo, for example are very expensive shoes Business opportunities don't need to be
and are all about luxury rather than necessarily being functional.
Therefore they appear high on the price axis and closer to luxury on
the purpose axis.

Premium price

* Jimmy Choo /
/

*Nike
*Skechers /
Functional Luxury
Clarks
Diadora /

/
/
* New Look

* Primark
/
/
Budget price
/
. . A . . Market mapping
E J /
/
Once all the current products are mapped it may become clear where
there is a gap in the market, in other words a SP,_ace on the map where
no products currently exist. The next question'is whether that gap can
be transformed into a business opportuni!J.
/'

.A..
&I jimmy Choo shoes are a luxury proauct
Franchises

■ Find that idea

InH'. tin.. int :1 fran hise is a rcl 1tively quick way for an entrepreneur
. tnrt a l u ·in ss. An "X'itin business will have developed a
1n-si 1-::it l" amount of knowledge and expertise around the business
i' , and b· l kin for people to buy the right to use that idea
in 1 rum· r a sha1 in the profits. Many businesses are
operated
nchises; 1 Donald's outlets in the UK are largely franchised
rati n·.

Advantages Franchise: the legal right to use the na

Disadvantages
existing firm and sell the same produc
• Able to sell an
already recognised
and successful
product
• Take advantage • Some of revenue
of experience is paid to
of franchisor franchisor
• Benefit from central • Lacks complete
services such as ownership
marketing and
training • Could lose
franchise

fJ Weighing up risk and reward

 Chapter 1 Starting a business 17
I

Thkin n, frnn -his" L ,,n )plio,n ()rth ·onsid 'ring for nnyon who
'"' nts nm n t usinc:s hut de . n't hn n sp ·ifi I usincss Id 'a or
,, ul lik minimis th' risk of. 11ing up in bu in s..
h. e ri ht frnnchi: cm ivc ye ti n h ml st.trl. tmn nd of ,,ctling
up bu im:.. ft m, er tch u us . 'l p1 v 'll busi11 s, id
•;1.·1yr,icnlly,
\ u trn und r th· l rnnd nam f the busin ss off ring you the
fnm hL . nnd it als h ' ou h ,Jp and su1port. You will have c.1
cess
to mi an n h w t nm th, busin ·,s rind oft •n b ncflt from the
m1 an ··: nnti 11,1) r c, -n int rnati nal mark ting strategy. In return,
3

) u will typicall n7 ctcd to l ay an initial fee and then a share of

) ur I 1 fits ro th fran ·his r.
Succe ful franchises hm e a much lower failure rate than completely
new busine,ses. Hm" ever, you will still need to work hard to make the
franchi·e a success and you may have to sacrifice some of your own
usiness ideas to fit in with the franchisor's terms. Buying a franchise can offer someone wh
to invest in a tried and tested business idea
In - 03 it was estimated that there were approximately 34,000
operating franchisees turning over £9.65 billion. Of these, almost 97
per cent had made a profit within five years, compared to 45 per cent
of other independent business (British Franchise Association).

COlinks
II What are the benefits of buying a franchise for someone who Find out more at:
wants to run their own business?
www.TheUKFranchiseDirectory.net
fJ Are there any disadvantages associated with franchise ownership? www.whichfranchise.com

El What type of business would make a successful franchise?

Taotalk goes silent
When Alexi Meisl set up his mobile phone company Taotalk, he had no idea
that in such a short time his business was going to fail. Initially everything
looked good - he found a great shop location, had agreed reasonable
contracts with his suppliers and sales were satisfactory. Alexi had also
reached the position where he was employing a dozen staff. Taotalk was
anything but silent. However, Alexi's plans were to grow the business as
quickly as possible, and for this he needed to find finance to enable him to
invest in'more new shops and buy the stock required.
Once again, everything looked favourable. Alexi had found an investor
who was willing to invest a significant sum of money into the business
in return for a share in the ownership of the business. However, just before
Alexi was
going to sign the lease agreement to rent a number of new shop,premises, the
investor changed his mind and advised Alexi that he was no longer willing to
invest in Taotalk. Consequently, Alexi was unable to expand the business as he
had planned and eventually the business failed.
The good news is that Alexi is already back in business, but this time
with a business partner who is willing to share the risk and the reward.

How could Alexi have reduced the level of risk for Taotalk?

How could Alexi have benefited from franchising his business idea?
 .
U111 bj t1v s
\ I h1 i, l !- l.h.1, t' • im. nnd I j, ·t ivs. Business ol>j ' ·tiv ' i lo 11ot
,1 ,,-.n. 11.lin \.Yin:-1.1111. hut ;n, ot'tc11 rl'vic\ 'I ;111c.l re is 'cl ns Iii'
· m,Hrn 'S. 1\ st;1n-up hu illL'SS (011c tli,11 is nl>oul to or lw.·
it .·t, t,1 i tr:1 iin ) ma h;nT n diffc..'l''llt s 't of obj 'Ctiv s frolll ;in
li:l t j .·u 'l'l .. full usin 'SS. F r 'X,lllll I', wh '11 I ',m1i11t, c1 sport
1 , ,.,h tl 11 k ,·c1·y ·;,uf'till)' ;ihout ry p;irt of th' gmnc,
bu,tis x1 cri 11• i
cm r:1tc c.. n the
· a1 ' ,. u find
.:11 d imp1 ,·ing Business aim: a stated target for the futu
· nc . Th same Business objective: a clearly defined tar
u ine· e . \ hen a Growth: an increase in turnover (sales), m
· · ·11._ up there are Profit: what is left after costs have been
n ,, hich it must Profit = revenue - costs
Profit margin: profit made as a proportio
a es growth - once a Sales: the amount sold or the value sold
£400).
ine.s ha made its _,.... Market share: the proportion of total ma
sale i will attempt to r.J Achieving that target! Customer satisfaction: how happy the c
· crease the level of sales to
Ethics: the moral questions on which de
- e maximum level it can achieve.
. aking a profit - this is typically measured both as an amount
of profit (e.g. £3,000 profit) or as a percentage (e.g. 10 per cent
rofir) \\ hich is known as the profit margin.
Survi\ al - keeping the business open is likely to be one of the most
· porranr objectives in the first years of trading. A business will
only survive if sufficient sales are being made to cover its costs.
Otherwise it will need to borrow money to cover costs, which,
ultimately, it may not be able to repay.
_ arket share - depending on the number and type of competitors
the business faces, it will have control of a share of the total market
(normally expressed as a percentage). For example, Cola-Cola and
Pepsi each have almost 50 per cent of the total market for cola.
Achieving a greater market share is a common objective for business.
Customer satisfaction - achieving high levels of customer
satisfaction wilJ not only result positively in terms of sales, but
also in terms of customer Joyalty, repeat business and word-of-
mouth advertising.
Socia] objectives - for a social entrepreneur these may be either to
mav....eenough money to share with others, or for the business itself
to provide a product or service that helps others. Alternatively,
for profit making businesses, there is the need to consider their
business ethics. Taking into account the effect the business has on
others may also affect profit, as customers may not be willing to buy
from it if it is unethical.
We wil] look at the objectives that more 1rn11:ure ,ind experienced
businesses set themselves in later chapters.
It is vital for a business to set itself objectives, and to monitor and
review these objectives to ensure that it will achieve its overall aims.
 Chapter 1 Starting a business 19

Beauty Rooms
i k N rwan _et up B aut ms in 00 , providing beiluty
t tin nts u h - thrcadin , w , ing, mani urcs, p di urcs, filcitlls tind
I h tinting. Vi k h d alw y w ntcd to be self•cmploy d, nd so
, hen h nd her husband decided l tart f mily, sh knew this would
e an p rtunlt, tow r for herself at times that would fit in with her
f mily life. She set herself clear bjectives for the first year of trading:
• Recruit n ugh lients to cover the initial costs of setting up the
usiness.
Increase awareness of Beauty Rooms' services by providing an
excellent level of service and asking clients to recommend her
business.
Vick was not too
concerned about
makmg a profit in
her first year as she
was also working
part-time for
another business,
t;Gt®ta
which guaranteed II Have a go at setting some
her an income. objectives. Think about
your Business Studies
course and set yourself an
objective
l]I Beauty Rooms for the end of the course.
t;GU?tlti» This might be related to a
particular grade you want to
D Why was it important for Vicky to set objectives for her achieve or to the knowledge
business? or skills that you would
like to acquire. Who do
fJ Why was Vicky concerned about recruiting enough clients to
you think you should share
cover the initial costs of setting up the business?
this objective with? Who
II Identify two new objectives that Vicky might set herself might help you achieve it?
when she becomes wholly self-employed. Write the objective down in
your notes now so you can

■ Clear objectives
refer to it throughout your
course.

A business that sets itself objectives is able to work towards something.

Have you ever been set an objective to work towards? Maybe at school
or college your teacher has suggested you might achieve a certain AQA Examiner's tip
grade if you keep working hard, or your parent or carer might have When writing about business objectives, remem
offered you a reward if you keep your room tidy for a week? Objectives
can take many forms, but above all they must be clear.
There is no point in setting objectives that people don't understand
as they wi11 not know what they are supposed to be doing. In some
ways it is just as important that people understand the reason for
the objective. Did your parent or carer explain why you need to keep
your room tidy? If you had realised it was because they were worried
your younger brother or sister might darm1ge your things, would you
have made more of an effort? So objectives need to be understood by
everyone, and sharing the reason for the objective can help this.
Businessobjectives: measuring success

Success can come in many forms

Business success
In the previous pages we considered business objectives: the targets set
by businesses to direct their actions. Commonly, profit or turnover is Turnover: the value of sales made during
a business's main objective. Profit is calculated by deducting the
costs from revenue (sales). A business works out the total of all its
costs, such as raw materials, staff salaries, rent, and so on. It then
calculates ho much revenue it earned from the sales of its product
or service. The final calculation deducts (subtracts) the costs from
the revenue, giving the profit or loss.

Profit = Revenue Cost

If a business achieves these

objectives they could be
considered successful. For
example, for Ania's gardening
business, her most important
objective was to find 50 customers
in the first year, which would
enable her to earn enough money
to cover her costs and pay herself
a salary. At the end of the year,
Ania could judge her success by
recording how many customers
she had found in that year. If the
number was 50 or more, she had
been successful.
to her chances of success
 Chapter 1 Starting a business 21

H " , 1; if Anin hnd nly und 48 customers in rh:.11 first ycnr,

would that m an sh hn I foil I, s, sh, lwd foiled 10 rn ''I that
tmm1m1ra
objective, D Objectives can be used to
l ut. a. utlin d on pag l . n I< objectivc for 11 start-ur btrnlness is measure success such as
sun\ I. lf 4 cusrom rs wns nough for Anin to k ·p th · business making a profit.
, ing th - n tnn b ov rnll w ·ould say thnt l\nin hnd b en succ
1

•ssful in her first) ...nr. Ench individunl obj 'Clive is important Lon Look back at the
business, but it must als look nt th, obje tivcs more broadly, entrepeneurs and consider
conlinually which of the other
qu ti ni th -m. Maybe som or Ania's 48 customers actually objectives would help to
bought measure their success,
more from h 'r than she had nnticipatccl, so overall her level of sales
wn high r than she expected. If so, does the number of customers
reall) matt r?

Pfs Disco
Pete and Jane set up their mobile disco to try and increase their family
income: both worked full time in other jobs but had always enjoyed
music and making people laugh! In their first year of running the business
they weren't concerned about how many bookings they made, as they
wanted to concentrate on developing their service. They wanted to
ensure that their customers were happy and gather feedback about how
their service could be improved.
After the first year of trading, once they were confident they knew what
they were doing, they set themselves an objective of one booking per
week. By the end of the first six months of the second year they were
achieving on average two bookings per week but Jane wasn't happy. They
had very little time to enjoy their own lives as they were both constantly
working.

AQA Examiner's tip

When answering a question about meas

fJ Would you consider this business to be successful? Explain your whether those objectives have
answer. been met?

EJ How could Pete and Jane change their objectives to improve

their success?

t-G®iUA
' II Identify a small business in your area or on the internet. Can you
find
out what their objectives are for this year? How will they monitor
COlinks
Research small businesses at: www.uksmallbusinessdirectory. co.uk
Businessobjectives: stakeholders

l ll.'in' '" l _k ·ti, 'S: m asurin su ·· 'SS (1ng 'S 20-2 l) w I ·arnl
,,,1
h 1,,. l tt in', s 'rs us, bi,·tiv 'S to m ';tsur, th 'ir su ·cess. How
·v ·r,
i. it j I t th' l usin s. wn 'I"·, hat judges whether ;1 business lws been
:,ful. u think th 'r1 pie who are c1ffectecl by the business
ul 3ls h;n- a say.

f;Gtt7tta Stakeholder: an individual or group wi

D Re·\e\ the circumstances of Nilesh, from 'Meet the entrepreneurs' in
the unit opener. Who do you think his business affects?

■ Stakeholders
takeholders are individuals or groups with an interest in a business.
e le,·el of interest of each stakeholder group depends upon the type
business. For example, Alex's web design business (see 'Meet the
enrrepreneurs' in the unit opener) has very little impact on his local
mrnuniry as he works from his home office, and in fact most of his
f;G®ii'i.
eighbours do not even realise he has a business. However, a company fJ Identify a business with
such as British uclear Fuels, which runs all Britain's nuclear power which you are familiar and
stations, has a big impact on the communities where power stations are create a spider diagram
based because of the potentially hazardous nature of their work. to identify the business's
stakeholders.
■ Stakeholder influence Chapter 1 Starting a business 23

So srokehold 1, will hnvc nn pinion n wh th r th, business is

sue essful. be :ms" if th y hm c I en positively or negatively affected tmtcura
l) th l usin ss, th ) will jndg - it nc ordingly. For xnmplc, ir Alex's EJ Return to the spider diagram
,, l design di·n start visitin :r him nt his home office and parking you created earlier and
oil add some notes to
along th 1 ad. hi. neighb urs may be unhappy with this. However, describe how each
it is up to le.,. as the usiness own r, to consider whether this stakeholder group affects
stakeh Ider gmu1 ·s judgement of his business matters. If he believes the business's activities
it doe matter. this grou1. of stakeholders will affect the way Alex and objectives.
does bu iness. He may choose to find an office away from home in a
bu iness ffk or other suitable location.
A business needs to consider its stakeho

Shareholders
·Community Customers

Bank Manager Business Supplier

Manager Employee

A -...
..
E J Business stakeholders

Stakeholders can have a considerable influence on the way a business

carries out its activities and consequently its ability to meet its objectives.

Agenda
Date & time:13 June 2009

Location: Reception room 4

Present: CEO, Dept heads

Apologies: Finance director, Jim Cash

Item 1: Role of each stakeholder

Item 2: Importance of each stakeholder to business

Item 3: Impact of each stakeholder on business

Vote: Order stakeholders in priority to business

Any other business:

II A business meeting agenda should be presented ina clear and simple manner
Business plans

Why plan? Objectives

To understand the purpose of
business planning.
Tobe aware of the main
sections within a business
star
up plan.

Business plan: a statement showing

Funding: the capital {money) provi
Forecast: a technique where the bus

:t\1.issio aims - states the goal of the business.

Objecti, es - states what needs to be done to achieve the goal.
farket environment - considers what is happening around the
business that will affect it.
• Competition - how many competitors there are and what they are
doing.
Product/service - a description of what the business is offering.
Marketing - how the business plans to let potential customers know
about its product/service.
Distribution - how the business plans to get its product to the
customer.
Funding - how much all this is going to cost. The structure and content of a busin
Forecasts - how much money the business expects to earn.
Resources - what resources the business currently has available and
what it needs in the future.
Timescale - when it is all going to happen.

With a map you are more likely to reach your destination!

II So now you understand the purpose of a business plan, what does

one look like? Have a look at Alex's business plan opposite to
identify the key sections within a business plan.

fJ Minseung didn't write a business plan when she started her business.
Why do you think this was? How might this affect her business?
 Chapter 1 Starting a business 25

Alex's business plan

Mi si nlaims
, The dev I pm nt f profc i nal,yet
affordable, l:'b ltc nd relat d . crvlces
for mall nd medium enterprise .

Objecti e.
To gener te £50,000 sales in Year 1.
To achieve a profit margin of 55 per cent
by the end of Year 2.
To be recognised as the leading
web de eloper within the UK for
small and medium enterprises by
Year S.
Market environment
H!ghly competitive with a number of large- and small-scale competitors with a
wide range of expertise and pricing to match.
New web developers are joining the market all the time and equally existing
web developers are failing and leaving the market. A highly changeable
market environment, but there is huge growth potential working with small
and medium enterprises as they realise that customers expect them to be
on the internet and do not have the expertise to develop their own
websites.

Competition
Many competitors are based nationally and locally, but having analysed the
products, services and pricing of each there is real potential for an affordably
priced business that understands the needs of small and medium enterprises.

Product/service
Basic website design
Website hosting
Website maintenance and management
E-commerce
Marketing
■ We will have our own website to market our services, which will be
constructed in such a way that it will be ranked highly by search engines
such as Google, Yahoo and so on.
We will also advertise in electronic versions of Yellow Pages, Thompson Local
and other business directories.
We will ask clients for testimonials and recommendations.
We will attend all relevant trade fairs to demonstrate our services.
COlinks
Distribution For a useful presentation on
Not applicable. business plans created by business
Funding and forecasts advisers 'Wisteria' visit
See cash flow and profit and loss forecasts for Years 1-5. www.wisteria.co.uk (click on
business tips & tools>How to create
Resources an effective Business Plan).
Apple MacBook Pro More guidance is available from
Hewlett Packard Servers for hosting Business Link, a national network
Home office equipment of free business advice and support.
Timescale Visit www.businesslink.gov.uk
Company website currently under development - will be completed by end
of month.
Recruit first clients within two months.
Attend trade shows in spring and summer.
 "'i. :-ilw:n-s ri k ;'lnrl 1 'W, rel.1s. ociat ,ct with business nnd we hav by
h f:1 t th:,t 't1t1 '11 'll urs need to decide if the reward • •1:..J•.1; ... ,:; •
i. ,, 1 th ,;. k 1 f 1 'ml :,rking on their business start-up. One or
, . in ,,·hi 11 an 'ntrep1 neur can try and deal with risk is to
ti r i atn d th n 1 ut 1 bns in place to try and either remove it
ly r n du e its impact on the business.

General business risks

Bu iness failure - complete closure or even bankruptcy.
Partial business failure - closure of certain parts (divisions) of the
usiness.
Loss of earnings - for the owner and/or employees.
Shrinking market - reduction in the number of potential customers
and the subsequent impact on sales.
Loss of market share - competition takes some of the business's
customers.
Personal risks - to finance, relationships and even health.

Functional risks
Marketing - the market research data is incorrect and consequently
wrong decisions are made.
Sales - customers' incomes change and they can no longer afford to
buy the product.
Operations - a competitor sources new technology, which means it
is more efficient than the business.
finance - interest rates increase, which means the bank loan costs
far more per month.
• Human resources - unable to recruit anyone locally with the right
skills.

■ Business uncertainty
Even though the entrepreneur may have written a business plan and
tried to identify a11 the risks that a business might face, there is nothing
certain in business. Uncertainty arises when we are unable to identify
or forecast what is going to happen. Having read the Taotalk case study
on page 17, you will remember that Alexi thought that investment
promised by his investor was certain, but ultimately that proved not to
be the case and caused the failure of Alexi's business.
Business uncertainty can be a real source of stress and anxiety for
entrepreneurs and unfortunately little can be done about it - there is
no entrepreneurial crystal ball! For an entrepreneur and their business
to deal with uncertainty, they must proceed with caution and develop
a business that is flexible, which can deal with change. For example, if
Alexi had not relied solely on this one investor, but identified a number
of alternatives, it would have enabled him to deal with the withdrawal
of that one investor.
Business risk and uncertainty Risk: the potential for loss but rewards i
Uncertainty: not knowing the future, or w

..A...
f,I There is no entrepreneurial crystal
ball!
 o.:)links
Re, d al out how adbu y
chw pper on"idt.!r'.iits ri:.k:;. www.inve"ti'.co

start-up of a business is the beginning of the challenge!

II Uncertainty in business is difficult to anticipate by its very nature.

Read through Alex's business plan on page 25. Can you identify what
uncertainties and risks they might face? For example, Alex could be
uncertain about how he is going to actually recruit his first customers
- will his marketing do its job?

■ Planning for uncertainty

Asyou learnt earlier, a business plan seeks to set out how a business
is going to achieve its aims and objectives. However, a business plan
needs to do more than that - it needs to attempt to identify what
might happen in the future and show how the business will deal with
that. For example, a business that is not certain whether there will be
enough customers in its geographical area may explore other areas and
identify them in its plan as having potential for the future. Equally,a
business that is not certain about the costs of its materials may decide
to agreea fixed price with its suppliers; this may be slightly higher than
the normal price but is guaranteed.

f/4AWIP•
fl Look at the list of uncertainties you identified Nilesh and Alex might
face. Try to identify how they could deal with each uncertainty. What Flexibility and contingency
plans could they put in place? planning are key to the ability of a business t

By considering alternatives, also known as contingenciesa, business

plan is strengthened. However, we must be aware thnt:nobusiness
plan is perfect. Events happen that cannot be foreseen nndthebusiness
world is constantly changing. This means that business plnnsshould
not just be written and left in a drawer gathering dust, they shouldbe
a 'living' document, which should be continually revisitedandupdated
to reflect changes taking place and new challenges ahead.
Setting clear business objectives is vital