What is Business Activity?

Businesses - an organization which produces goods and services

Organization - A group that has been formed for a particular purpose
Goods - Physical Products
Services - Non-Physical Products
Output - the amount of goods produced
Human Resources - the department which is responsible for employing and training
employees

>Features of business activity-

- Business activity produces an output (goods and services)
- These goods and services are consumed by consumers
- Resources are used to create goods and services
- A number of business functions are carried out; Production, Marketing,
Human Resources and Financial Control
- External Factors affect businesses
- Businesses aim to create profit

Consumer goods - goods and services that are sold to consumers rather than
businesses
Producer goods - goods and services produced by one business for another

Needs - Basic Requirements for human survival

Wants - people’s desires for goods and services

Examples of needs: Water, Food, Warmth, Shelter and Clothing

Examples of Wants: Holidays, Bigger houses, electronics, expensive cars

Infinite - without limits

Finite - having an end or limit
Scarce - resources with limited liability

>Humans have unlimited wants but there are only finite resources on Earth meaning
these resources are scarce

Private Sector - business organizations that are owned by individuals or a group of

individuals
Public Sector - business organizations that are owned by the government
>Private Enterprise: Private Sector businesses main objective is to make profit for
the owners
>Social Enterprise: Private Sector businesses that are non-profit
>Public Enterprise: Public Sector businesses which provide services such as
healthcare, education, security, etc. The main purpose is to produce services that the
private sector fails to provide

Stakeholder - an individual or group with an interest in the business

Examples of Business Stakeholders:

- Owners
- Customers
- Employees
- Managers
- Financiers
- Suppliers
- The Local Community
- Government

Entrepreneur: a person who takes risks and sets up businesses / an individual who
organizes the other factors of production and risks their own finance in a business
venture
Business Objectives
Executives - managers in an organization who help to make important decisions
Diversify - if a business increases the range of goods or services it produces

Reasons why Businesses need to have objectives:

- Employees need something to work towards and objectives help with
motivation
- Without objectives, owners might not have the motivation to keep their
business going which can lead to business failure
- They help the business to decide where to go next and what they need to do
to get there
- Easier to assess the performance of the business if objectives are set

Financial Objectives
Survival
>It is an important objective
>When a business starts up, it is vulnerable due to various reasons
>The business could also be threatened when starting up due to harder trading
conditions or a stronger competitor emerges

Profit
>Financial Return - monetary return
>Profit Maximization - making as much profit as possible in a given time
>Shareholders - owners of limited companies
>Dividends - the share of profit paid to the shareholders

>This is an objective as owners want to make a financial return

>Business try to make as much profit as possible
>Some businesses are pressured by shareholders to do this

Sales
>Owners might want their businesses to grow in sales, this is because businesses
with a large amount of sales can enjoy benefits such as:
- Lower costs
- Larger market share
- Higher public Profile
- More wealth for the owners are generated
>Stakeholders also benefit from this
Increases Market Share
>Businesses want to have a large market share
>This can be done through winning customers from competitors
>Businesses with a large market share can dominate a market

Financial Security
>Profit Satisficing - making enough profit to satisfy the needs of the business
owner/s

Non-Financial Objectives
Social Objectives
>In the public sector, social objectives are important
>They are designed to improve human well-being
>They can also be designed to improve the well-being of the environment
>Businesses have attempted to improve their social responsibility through taking into
account the needs of their stakeholders.

Personal Satisfaction
>Businesses are sometimes set up so the owner can feel more satisfied to work in
their own personal environment

Challenge
>Owners might be motivated by the challenges of starting a new business

Independence and Control|

>Some people want to be their own boss as they want to be in control
>Entrepreneurs are driven to have their own independence

Why Business Objectives might change

Market Conditions
>When market conditions change, the business needs to set new objectives to keep
up with their competitors and other rivals
Technology
>Automation - the use of computers and machines to do a job instead of people
>Economies of Scale - the financial advantages (the fall of average costs) of
producing something in large quantities

>As technology increases, businesses would have to change their objectives to keep
up
>An example would be a businesses switching to automation to increase sales
growth
>A businesses might want to exploit the economies of scale
>A business might want to win a larger market share through introducing online
services

Performance
>The performance of businesses do not stay constant
>Sustained Profitability may be affected by this
>The performance levels of a business have an impact on their objectives

Legislation
>This can have an affect on business objectives
>Recently business have become socially responsible, this could be because of:
new environmental, consumer or employment legislation

Internal Reasons
>A change in ownership can cause a change in business objectives, this is because
the new owners might want to achieve something else
Sole Traders, Partnerships, Social Enterprises and
Franchises
Innovator - someone who introduces new ideas and changes
Labor - people who are employed into a business / used in production

>Entrepreneurs are innovators as they attempt to make money out of a new

business idea
>Entrepreneurs are responsible for organizing their factors of production.
>Entrepreneurs make the key decisions for their business
>Entrepreneurs have to be risk takers

>Unincorporated - businesses where there is no legal difference between the

owner and the business
>Everything is carried out in the name of the business owner

>Incorporated - business that has a separate legal identity to the owner

>This means that the business can be taken over or liquidated

>Sole Trader - a business which is owned by a single person

>Unlimited liability - the owner of the business is personally liable for all the debts
of the business

>A sole trader is the most simple type of business organization

>There are no legal requirements to set up as a sole trader
>Sole Traders have unlimited liability
>Partnership - a business that is owned by 2 or more people
>Deed of partnership - a binding legal document that states the formal rights of
partners

>The owners of a partnership ship have to share responsibility of running the

business and they also have to share their profits
>When forming a partnership, a deed of partnership has to be formed
It states:
- How much capital each partner will contribute
- How the profits and losses will be shared
- The procedure to end the partnership
- How much control each partner has
- Rules on taking on new partners

>Limited Partnership - a partnership in which the partners contribute capital and

enjoy a share of the profit but they do not take part in running the business
>Limited Liability - the business owner is only liable for the original amount of
money invested in the business

>Franchise - a structure in which a business (the franchisor) allows another person

(the franchisee) to trade under their name
>Merchandise - goods that are being sold

What a franchisor offers to a franchisee:

- License to trade under their brand
- Start-up package which includes help, advice and equipment
- Training in how to run the business
- Material, equipment and support to the business
- Marketing support
- Exclusive geographical areas where there will be no other franchises of the
same group
Franchisees have to pay fees for these services:
- One-off start-up fee
- An ongoing fee that is based on sales
- Contribution to marketing costs
- Profit made on the supplies provided to the franchisee

>Social Enterprise - businesses that aim to improve human or environmental well

being
>Things about Social Enterprises:
- Clear social or environmental mission
- Generates a majority of their income through trade or donations
- Re-invests a majority of their profits
- Are majority controlled in the interests of the social mission
- Accountable and Transparent

Forms of Social Enterprises:

- Cooperatives: a company in which all the people working there own an equal
share of it
- Consumer cooperatives: a cooperative that is owned by consumers
- Retail Cooperatives: Cooperative of retail members who work together to
assert their purchasing power
>They are all owned and controlled by their members, they are able to buy shares
and they can elect directors to make key decisions. Any profit made goes to the
members

- Worker Cooperatives: a cooperative that is owned by its employees

- Charities - organizations that give money, supplies or help to poor people,
sick people or those who are in need
Limited Companies and Multinationals
Features of Limited Companies
Limited Companies - business organizations that have a separate legal identity
from their owners
>These types of businesses are normally incorporated

Limited Liability - the shareholders are responsible for the debt of the company
depending on how many shares they own

>Limited company normally raises capital through selling shares.

>Shareholders elect directors to run the company. The board of directors is held by
the chairperson
Chairperson - the person who is in charge of directing the work of the organization

>Have to pay corporation tax on the profits made

>To form a limited company, it is required to follow a legal procedure

Private Limited Companies

Private Limited Company (LTD) - the liability of the shareholders is limited to the
capital they had invested in the company
Stock Market - market for shares in PLCs

>Their shares can only be transferred privately

>All shareholders have to agree on the transfer of shares
>These shares cannot be traded on the stock market
Public Limited Companies
Public Limited Company (PLC) - a limited company whose shares can be freely
sold and traded

>Normally larger companies compared to LTDs

>Their shares can be sold and bought by the public via the stock exchange
>Any person and business can buy shares of a PLC

Going public can be expensive:

>Prospectus - a document produced by a company that wants the public to buy its
shares
>Regulatory Control - the official power to control an activity and to make sure that
is done in a satisfactory way
>Flotation - the process of a company going public

>the company needs lawyers to make sure that the prospectus is done legally
correct
>the bank may be paid to process the share applications
>there is advertising and administrative costs

Multinational companies
Multinational Company - a large business with significant production in at least 2
different countries

They include:
- Huge Assets and turnover:
- Highly qualified and experienced professional executive and managers
- Powerful Advertising and Marketing Capabilities
 - Up-to-date technology
- High influence in politics and the economy
- Exploitation of the economies of scale
- Ownership and control is centered in the host country

Public Corporations
Features of Public Corporations
Public Corporations - businesses that are owned and controlled by the government

>They are state owned, the government appoints the people who run the business.
They are also responsible of the business policies
>They are created by law
>They are incorporated
>They are state-funded, the money funded comes mainly from taxes, all assets and
liabilities belong to the government
>They provide public services
>Public Accountability

Reasons for public ownership

>To avoid wasteful duplication- It would be wasteful if there were 2 natural
monopolies in a market
Natural Monopoly: a market where it is more efficient to have just one business meet
the total market demand

>Maintaining control of strategic industries - This is to prevent other countries from

taking over vital industries and exploiting them
>Saving Jobs
>Fill in the gaps left by the private sector
>Serve unprofitable regions

Reasons against public ownership

Subsidize - paying part of the costs (often by the government)

>Costs to the government - Public corporations make losses. Money that is used to
subsidize public corporations can’t be used for better alternatives
>Inefficient - Low productivity and takes too long to do / inefficient
>Political Interference
>Difficult to control
Privatization
Privatization - the transfer of public sector resources to the private sector

Forms of Privatization:
>Sales of Public Corporations: This can be done through selling the shares of the
business to people who wants them
>Deregulation: Involves lifting legal restrictions that prevented private sector
competition
>Contracting Out: This is where contractors are able to bid on services supplied
from the public sector
>The Sale of Land and property

Why does Privatization take place?

>To generate income
>To reduce inefficiency in the public sector
>Because of deregulation
>To reduce political interference

Appropriateness of Different Forms of Ownership

Factors affecting the appropriateness of different forms of ownership
>Growth: As a business grows, they change their legal status in order to raise more
capital.
>Size
>Need for Finance: Businesses change their legal status in order to raise more
finance
>Control
>Limited Liability
Classification of Businesses
Primary Sector
Primary Sector: production involving the extraction of raw materials

Examples of activities in the primary sector:

>Agriculture
>Fishing
>Forestry
>Mining / Quarrying

Secondary Sector
Secondary Sector: production involving the conversion of raw materials into
finished/semi-finished products

>Mainly contains manufacturing, processing and construction activities

Tertiary Sector
Tertiary Sector: production of services in the economy

Examples:
>Commercial Services
>Financial Services
>Household services
>Leisure services
>Professional Services
>Transport Services
Location
Proximity to Market - How close a business is to its consumers
>Could be done to decrease transportation costs
>Also done as some businesses are located close to consumers as they directly sell
their services to them (e.g cafes and corner stores)

Proximity to Labor - How close a business is to qualified employees

>To find specific labor, businesses might locate to a certain area (e.g Silicon Valley, USA
for technology)

Proximity to Competitors - How close a business is to rival businesses who are

competing in the same area/market
>Some businesses might locate their business where there is minimal competition
>Some businesses might locate their business where there is a high amount of
competition, this is because in some industries comparison shopping is popular.
>Also it could be so excess demand could be caught from existing businesses

Proximity to Raw Materials - How close a business is to raw materials used to create a
product
>Businesses may choose to locate near their resources to reduce transportation costs
>Brownfield site - Areas of land that were once used for Urban Development
>Greenfield site - Undeveloped areas of land which are usually on the outskirts of cities

Proximity to Supply - How close a business is to it's supply

Impacts of the internet on location -

>Businesses don’t need fixed premises
>Need to locate in placed with great network speeds
>Allows Entrepreneurs to be more flexible

>This means they require:

-greater network speed and capacity
-communication systems are vital

Government Control on Location:

>Encourages businesses to locate where unemployment is high - Government uses
financial incentives
>Business may need official permission to locate in a certain area
>Bans to locate in certain areas to protect the environment
>To avoid congestion, where there is already development this will reduce strain on
existing infrastructure
>Minimizing the impact of businesses on small communities
>Assisted Areas - areas designated by the government as having economic problems
and are targeted to receive support
Globalization
Globalization - The growing integration of the world’s economies

>3 Main Elements of Globalization - Imports, Exports & Business Location

Reasons for Globalization:

>Development in technology
>Improvement in international transport networks
>Deregulation
>An increase in tourism
>Firms want to sell abroad
>Domestic Market Saturation

>Countries cannot trade if the government keeps international borders closed.

>International trade will be very limited if governments put up trade barriers.
>People cannot be free to live and work in overseas countries unless borders are
kept open.
>Firms cannot develop their businesses overseas if planning permission is denied.

Opportunities of Globalization:
>Access to Larger Markets
>Lower Costs
>Access to Labor:
- Fast Business Growth can lead to a shortage in domestic labor, this means
workers from overseas are able to help increase the labor supply, this can
lead to an increase in better quality workers and better productivity.
- Rising labor supply can lead to a prevention in wages from increasing.
- Can lead to recruitment in higher quality staff from abroad.

>Reduced Taxation

Threats of Globalization:
>Competition
>International Takeovers
>Increased Risk of External Shocks
Importance and Growth of Multinational Companies
Multinational Companies: A company which does business in different countries / a
large firm with a head office in one country but has several branches operating overseas

Factors allowing Multinational Companies to grow rapidly:

>Improved Communications - ICT and Transport Networks
>Removing Trade Barriers - leads to easier movement of raw materials + finished
products
>Deregulation of the world’s financial markets - easier to avoid tax and easier to transfer
capital
>Increasing economic and political power of the Multinational Company
>Globalization
>Economies of Scale - this is so they can exploit them to reduce overall costs
>Marketing
>Technical and Financial Superiority

Benefits of becoming an International Company:

>Larger Customer Base - can help to increase profits and win market shares from
competitors
>Lower Costs - Can buy raw materials for lower prices and can borrow money at
cheaper rates
>Higher Profile
>Avoiding Trade Barriers
>Lower Taxes

Benefits of Multinational Companies to employment + the economy:

>Increase in Income and Employment - creates new jobs in developing countries, extra
output + employment generated from multinational companies will increase economic
growth
>Increase in Tax Revenue - Profits made by Multinational Companies can be taxed
meaning there will be a high amount of revenue generated
>Increase in Exports
>Transfer of Technology - Multinational Companies provide foreign suppliers with
technical help, training, etc.
>Improvement in the Quality of Human Capital - Multinationals provide training and work
experience in developing countries
>Enterprise Development - Arrival of multinational has encouraged people to set up their
own businesses and helped provide the skills and motivation needed for enterprise

Disadvantages of Multinational Companies to a country + economy:

>Environmental Damage
>Exploitation of Less Developed Countries;
 - Multinationals can encourage developing countries to mainly produce primary
products which leads to them being vulnerable.
- Multinationals often pay low wages and can employ child labour along with
working conditions in the factories are often poor
- Minimal Tax payments to host nation
- Little reinvestment into developing country as doing so would decrease profit

>Repatriation of Profits
>Lack of accountability - means that multinational corporations can easily evade laws
especially in countries with corruption and similar activities.

International Trade and Exchange Rates

>International Trade allows:
- Countries to obtain goods which cannot be produced domestically
- Countries to obtain goods that can be bought more cheaply from overseas
- Helps to improve customer choice
- Provides opportunities for countries to sell of surplus commodities

>Exports: Goods and services sold overseas

>Imports: Goods and services bought from overseas
>Visible Trade: The trade of physical goods
>Invisible Trade: The trade of services
>Balance of trade: The difference between visible exports and visible imports

>Value of a currency in terms of another currency

>Impact of Imports and Exports if the Exchange Rate falls:
- Imports: Demand for imports will decrease as it is more expensive
- Exports: Demand for exports will increase as they are cheaper

>Impact of Imports and Exports if the Exchange Rate rises:

- Imports: Demand for imports will increase as they are cheaper
- Exports: Demand for exports will decrease as they are more expensive
Government Objectives and Policies
>Government Spending: Planned spending of money on the public sector

Taxation can be used by the government to help fund its expenditure on the public sector
because of the revenue generated from direct taxes such as income tax along with indirect
taxes such as VAT.

>Fiscal Policy: Using the changes in taxation and government expenditure to manipulate
the economy and to achieve the economic objectives
- If income tax was decreased, there would be more spending in the economy as
people would have more disposable income. Businesses would respond by
increasing production. A tax cut would also help those who have low pay.

Ways that the government can affect business activity:

>Change in laws
>Influencing the rate of interest rates and exchange rates in the country
>Change in taxation and government expenditure in the country
>Introducing policies that may have a direct impact on businesses

Infrastructure Provision:
The government is in charge of developing and maintaining a country's infrastructure
(includes roads, schools, hospitals, transport systems, etc).

Legislation:
Government Intervention: When the government becomes involved in an argument/difficult
situation in order to change what happens

If there was no government intervention, businesses might not meet the needs of
stakeholders and they might go as far as exploiting vulnerable stakeholders. The
government provides a legal framework for businesses to operate and to ensure that
vulnerable groups are not exploited.

Areas where legislation has an impact on businesses:

Consumer Protection:
- Consumers want to purchase products with good quality at a fair price and to also
receive good customer service
- Without government legislation, firms are able to exploit consumers by using
anti-competitive practices or restrictive practices (attempts by firms to prevent
competition)
- To do this, firms might:
>increase prices to high levels than they should be in a competitive market
>price fixing - this is when multiple firms agree on fixing the price of a product to
avoid price competition.
>restricting customer choice by market sharing
 >raising barriers to entry by spending large amounts of money on things which
smaller companies cannot (e.g advertising and large annual sales)
>Barriers to entry: restriction that make it difficult for a new firm to enter the market

Competition Policy:
To prevent anti-competitive practices and consumer exploitation, governments try to
promote competition. They do this by:
>Encouraging growth of small firms - if more firms join the market, there will be more
competition meaning the market would have a lesser chance to be dominated by one
large firm
>Lower barriers to entry - if they are lowered / removed, more firms would be able to
join the market meaning the market would become more competitive.
>Introducing anti-competitive legislation - these laws are designed to protect
consumers from being exploited by monopolies, mergers and restrictive practices.

Environmental Legislation:
>Businesses can have a negative impact on the environment such as creating
different forms of pollution. To combat this, the government creates environmental
legislations, if a business fails to comply with the laws made they would be taxed and
maybe shut down until the problem is resolved.

Trade Policy:
Trade Policy are rules set by the government to control international trade .

Use of trade barriers to protect domestic producers is known as protectionism,

they might be used to:
- Protect jobs if foreign competitors threaten the survival of domestic producers
- Protects infant industries (industries which are new and hasn’t been
established yet)
- Prevents dumping (when foreign producers sell goods below cost in a
domestic market)
- Raise revenue for tariffs

Trade barriers that can be used to restrict trade:

>Tariffs - To protect newly established industries from foreign competition. Tariffs are a tax on
imports which causes them to become more expensive

>Quotas - To regulate the volume of trade between them and foreign countries. Quotas are a
physical limit on the amount allowed into the country

>Subsidies - To encourage production and consumption of a specific industry. Subsidies are

the financial support that can be given to exporters or domestic producers that face
competition from imports.

>Administrative Barriers - the use of strict health and safety or environmental regulations and
specifications to decrease imports

Governments can use trade blocs (where a group of countries in the same geographical
region sign a trade agreement to reduce/remove trade barriers) to influence businesses.
Main benefits of trade blocs;
 - The opportunity to specialize in the production of goods and services which they can
produce with better expertise or at a lower cost
- Access to wider markets
- Lower costs if the economies of scale can be exploited when output rises
- Protection for large multinational companies from outside the trade bloc.

Disadvantages of a Trade Bloc:

- Can lead to conflict and tensions
- Protects inefficient businesses

Interest Rates: The amount a lender chargers a borrower and it is a percentage of the
amount loaned.
>They are normally controlled by the proper authorities meaning they can change.

Monetary Policy: The usage of the change in interest rates and the money supply to
manipulate the economy.
>The higher the interest rate, the more expensive it is to borrow money meaning the demand
in the economy would fall
>The lower the interest rate, the less expensive it is to borrow money meaning demand in
the economy would rise.

Impact on a business if there is an increase in interest rates:

>Loans become more expensive, consumers who are in debt have less income to spend
which leads to a decrease in sales, it makes saving money a better option and firms with
overdraft will have higher costs.

>Impact on a business if there is a decrease in interest rates:

If there is a low interest rate, it allows businesses to make large purchases due to their being
a lower cost of borrowing.

>Impact on consumers if there is an increase in interest rates:

The way it can affect consumers is that it means there are higher borrowing costs which
leads to the consumers to spend less

>Impact on consumers if there is a decrease in interest rates:

If there is a low interest rate, consumers able to spend more money on large purchases such
as cars and homes as they have more money to spend
External Factors
External factors are problems that businesses have to deal with that are usually beyond their
control.

Social External Factors:

>Increased Customer Awareness - consumers have higher expectations, they have access
to the internet meaning they have lots of information about products and are aware of their
rights. This means that business have to become more customer focused

>Change in Demand Patterns - changes in society can lead to changes in demand. An

example being the rapid growth in online businesses has changed the demand patterns

>Increased amount of working women - because of this, there has been an increased supply
in labor which helped to increase the number of new businesses

>More part-time workers - this helped to improve the flexibility in businesses because
part-time labor is more adaptive

>Urbanization - has provided businesses with more labor and has created more markets to
which goods and services can be supplied.

Technological External Factors:

The development of new technology results in new products which provide new market
opportunities meaning production becomes more capital intensive which leads to lower
costs. (Capital Intensive - use of more machinery than labor in production)

>In the primary sector, different machinery have helped to lower production costs in
agriculture along with chemicals/pesticides have also been used to increase crop yields

>In the secondary sector, the introduction of robots in production has helped to lower costs
as they are cheaper to employ and they work 24/7.

>Usage of technology in the service sector has helped to reduce costs. An example being
the usage of automatic check-ins in hotels has reduced the labor costs in the hotel industry

>Usage of IT has helped to reduce administrative costs along with communication costs

>Changes in technology can shorten the amount of time products can be marketed for, this
is because they can be quickly developed and replace products that use old technology

>Developments in technology means that businesses are able to replace labor with capital

>Developments in social media have helped to improve communications between

businesses and consumers. This allows businesses to remain aware of changing customer
needs.

Environmental External Factors:

>Global Warming - Greenhouse gasses such as carbon dioxide come from factories along
with care and travel emissions.

>Habitat Destruction - Business development might destroy habitats and the natural
environment.
>Resource Depletion:
- Non-renewable sources such as coal, oil and natural gas can’t be replaced meaning
they are depleting
- Fish Stocks are also falling meaning people who depend of fishing for their
livelihoods are at risk
- Fertile soil which is used to grow crops is also depleting meaning farmers are also at
risk.

Sustainable development:
It’s the idea that people should use their basic needs and enjoy improved living standards
without compromising the quality of life of future generations.

Ways that businesses may respond to environmental issues:

>Design packaging that can be reused
>Use more energy-efficient equipment/use renewable energy sources
>reducing business travel

Businesses also have to deal with political external factors.

Measuring Success in Business

Ways of measuring success in business:
>Revenue

>Market Share - businesses aim to increase their market share as a larger market share
allows the business to dominate the market. This would increase their profile allowing it to
charge higher prices for their products and services.

>Customer Satisfaction - Businesses will look at customer needs and wants and if the
customer service is good, the business will have loyal customers. Businesses have become
more customer-focused and make efforts to receive feedback.

>Profit - it can only be used as a measurement for business success if the business
objective is to maximize profit.

>Growth - There are several ways to measure business growth:

- Turnover / Revenue
- Number of employees
- Market Share
- The amount of capital employed

Owner/Shareholder satisfaction can also be used to measure business performance and

success

Employee Satisfaction can also be used to measure business performance and success
Reasons for Business Failure
Cash Flow Problems:
>Businesses can fail because they run out of cash due to the business being too focused on
profit.
Reasons why businesses can run out of cash:
- Overtrading; this occurs when a business attempts to fund a large amount of
production with not enough cash.
- Investing too much in fixed assets; occurs when a business spends large amounts
initially on equipment, vehicles along with other capital. This can quickly use up
resources.
- Allowing too much credit; could cause the business to wait for payment from
consumers meaning the business might have to take out loans
- Over-borrowing; the more a business borrows, the higher the interest costs are
- Seasonal Factors; example being with agriculture depending on the season, that
determines their output and that would determine the amount of cash they receive
- Unexpected Expenditure; businesses need to prepare for when this happens, this
might be because of a lack of experience along with poor planning
- External Factors; example being changes in consumer tastes or changes in
legislation and laws
- Poor Financial Management; caused by inexperience / poor understanding of the
way cash flows into and out of the business.

Lack of Finance:
Established and new businesses require finance or they would fail. Some owners think that
they would survive with limited amounts of capital meaning the business might be
undercapitalised (this means when a business starts up with insufficient capital)

Reasons why businesses would be not competitive:

>New entrants; new rivals could enter the market, this means that the competitors could:
- Bring out superior products
- Read market conditions more effectively
- Change to lower prices due to their costs being lower
- Using high amounts of discounts on products

>Ineffective Cost Control:

This could be because businesses might not be able to keep their costs down meaning a
business has to charge more to make profit. Reasons why a firm’s costs might be higher
than their rivals:
- The firm may be too small to exploit the economies of scale to reduce costs
- They might be wasteful with their money and spend it on useless things
- They might be paying too much for certain resources
- The firm might not be minimizing labor costs
- Costs may rise due to external factors
>Ineffective Marketing:
- May struggle to compete if their marketing is weak (New product may fail to take off
- Inappropriate pricing
- Inappropriate marketing strategies

>Lack of Business Skills:

The business owner may lack experience meaning they would make crucial mistakes which
could cause the business to fail.

>Poor Leadership:
A business could lose their advantage in a competitive market due to their owner or senior
managers making a mistake and this could be because of poor decisions or the failure to
make important decisions in urgent situations.

>Failure to Innovate:
It’s because they rely on old products, fail to adapt to new technology, don’t take the risk and
invest, and they don’t change with the times.