BUSINESS STUDIES NOTES

 CHAPTER 1: ENTERPRISES

Entrepreneur: an individual who has the idea for a new business,

starts it up and carries most of the risks but benefits from the
rewards.
PURPOSE OF BUSINESS ACTIVITY
A business is an organization that uses resources to meet the needs
of customers by providing a product or service that they demand.
Without business activity we would all be entirely dependent on the
goods that we could make or grow ourselves, as some people in
virtually undiscovered native communities still are.
Customer: an individual consumer or organization that purchases
goods or services from a business.
What do business do?
 Businesses identify the needs of customers.
 They purchase necessary resources to allow production to take
place.
 They produce goods and services which satisfy customer’s
needs, usually with the aim of making profit.

Consumer: an individual who purchases goods and services for

personal use.
Consumer goods: the physical and tangible goods sold to consumers
that are not intended for resale. These include durable consumer
goods, such as cars and washing machines, and non-durable
consumer goods, such as goods, drinks and sweets, that can be used
only once.
Consumer services: the non-tangible products sold to consumers
that are not intended for resale. These include hotel
accommodation, insurance services and train journeys.

Business activity exists to produce goods or services that meet the

needs of customers. Many of these customers will be consumers
who purchases consumer goods and consumer services.

The factors of production needed by businesses

 Land – this general term includes not only land itself but all the
renewable and non-renewable resources of nature, such as
coal, crude oil and timber.
 Labour – manual and skilled labour make up the workforce of
the businesses.
 Capital – this is not just the finance needed to set up a business
and pay for its continuing operations, but also all the
manufactured resources used in production. These include
capital goods, such as computers, machines, factories, offices
and vehicles.
 Enterprise – this is the initiative and coordination provided by
risk-taking individuals called entrepreneurs. They combine the
other factors of production into a unit capable of producing
goods and services. Enterprise provides the managing,
decision-making and coordinating roles.

Factors of production: the resources needed by business to produce

goods and services.

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Capital goods: the physical goods used by industry to aid in the
production of other goods and services, such as machines and
commercial vehicles.
Enterprise: the action of showing initiative to take the risk to set up a
business.

land
site for buildings
raw materials

capital
customers machines
factories/offices
finance

resources
needed by
business government
suppliers law and order
schools/colleges
roads/rails/airports

labour enterprise
skilled
risk-takers
permanent
coordinators
unskilled
decision maklers
temporary

Adding value: increasing the difference between the cost of bought-

in inputs (materials) and the selling price of the finished goods.

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Added value: the difference between the cost of purchasing bought-
in inputs (materials) and the selling price of the finished goods.
Branding: the process of differentiating a product by developing a
symbol, name, image, or trademark for it.
Opportunity cost: the next most desired option that is given up.
The dynamic business environment
Changes the business environment include:
 New competitors entering the market
 Legal changes - examples include new safety regulations or
limits on who can buy the product.
 Economic changes that leave customers with less money to
spend.
 Technological changes that make the products or processes of
the new business outdated.

KEY CONCEPT LINK:

The dynamic business environment is a major cause of change within
businesses. Decision-making by entrepreneurs is often focused on
responding to change.

Why do some businesses succeed?

 Good understanding of customer needs
 Efficient management of operations
 Flexible decision-making to adapt to new situations
 Appropriate and sufficient sources of finance

Why do some businesses fail?

 Poor record-keeping
 Lack of cash
 Poor management skills

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Multinational businesses: a business organization that has its
headquarters in one country, but with operating branches, factories
and assembly plants in other countries.
Intrapreneur: a business employee who takes direct responsibility for
turning an idea into a profitable new product or business venture.

The role of the entrepreneur when creating and starting up a new

business is to:
 Have an idea for a new business
 Create a business plan
 Invest some of their own savings and capital
 Accept the responsibility of managing the business
 Accept the possible risks of failure

Qualities of successful entrepreneurs and intrapreneurs:

 Innovation
 Commitment and self-motivation
 Multi-skilled
 Leadership skills
 Self-confidence and an ability to bounce back
 Risk-taking

KEY CONCEPT LINK:

Innovation is important for the success of any new enterprise.
Offering exactly the same goods or services as existing businesses
might not lead to great success.

Barriers to entrepreneurship:

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There are many barriers that every entrepreneur must overcome to
turn their business ideas into reality. Every entrepreneur needs to
address the following barriers to turn their business idea into reality.
These barriers include:
 Lack of business opportunity
I. An entrepreneur’s own skills or hobbies, such as
dressmaking or car bodywork repairing.
II. Previous employment experience
 Obtaining sufficient capital (finance)
I. Insufficient savings-many entrepreneurs have limited
personal savings.
II. No knowledge of the financial support and grants
available
III. No trading record to present to banks as evidence of past
business success
IV. A poor business plan that fails to convince potential
investors of the chances of a business’s success
 Cost of good locations
I. It may not be close to the area with the biggest market
potential.
II. It lacks status – a business with its own impressive premises
tends to generate confidence.
III. It may cause family tensions
IV. It can be difficult to separate private life from working life.
 Competition
A newly created business will often experience competition
from established businesses with greater resources and market
knowledge.
 Lack of customer base
I. Personal customer service
II. Knowledge pre- and after- sales service
III. Supplying one – off customer requests that large firms
may be reluctant to provide.

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Role of enterprise in a country’s economic development:
 Employment creation: when a new business creates jobs, the
national level of unemployment will fall. If the business survives
and expands, additional jobs are created in supplier business.
 Economic growth: any increase in output of goods or services
from a start-up business will increase the gross domestic
product (GDP) of the country. If enough small business are
created, economic growth will lead to increase living standards,
increased output and consumption will also result in higher tax
revenues for the government.
 Business survival and growth: although a high proportion of
start-ups fail, some survive, and a few expand to become very
important businesses. These businesses will employ large
numbers of workers, boost economic growth and take the
place of businesses that may be in decline or closing due to
changing consumer tastes or technology.
 Innovation and technological change: new businesses can be
very innovative. This creativity adds dynamism to an economy.
Creativity can stimulate other businesses and help to make the
nation’s business sector more competitive.
 Exports: most business start-ups offer products that meet the
needs of local markets. Some will expand their business in
other countries. This will increase the value of a nation’s
exports and improve its international competitiveness.
 Personal development
 Increased social cohesion

Three key differences between an entrepreneur and an intrapreneur:

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 Entrepreneur Intrapreneur
Main activity Starting up a new Developing an
business innovative product
or project within an
existing business.
Risk Taken by the Taken by the
entrepreneur business
Rewards To the entrepreneur To the business

The benefits of intrapreneurship to existing businesses include:

 Injecting creativity and innovation into the business.
 Developing new ways of doing business.
 Driving innovation and change within business.
 Creating a competitive advantage.
 Encouraging original thinkers and innovators to stay in the
business.
Purpose and key elements of business plans:
The main elements of a typical business plan are:
 Executive summary
 Description of the business opportunity
 Marketing and sales strategy
 Management team and personnel
 Operations
 Financial forecasts
Business plan: a written document that describes a business, its
objectives, its strategies, the market it is in and financial forecasts.
Benefits of business plans
Business plans are most important when setting up a new business.
The main purpose of a business plan for a new business is to obtain
finance for the start-up. Potential investors or creditors will not

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provide finance unless details about the business proposal have been
written down clearly.
If an entrepreneur started a business with no clear sense of purpose
or direction, no marketing strategy and no idea of which employees
to recruit, then its chances of success would be reduced.
Limitations of business plans:
A detailed business plan could create a false sense of certainty in
business owners. They might rely so much on the plan that they
overlook the fact that it is based on forecasts and predictions.
The business plan must be detailed and supported with evidence
such as market research. If it is not, then prospective creditors and
investors can delay in making a finance decision until the plan is
brought up to the required standard.

CHAPTER 2: BUSINESS STRUCTURE

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Private limited company: a business that is owned by shareholders
who are often members of the same family; this company cannot sell
shares to the general public.
Initial public offering: an offer to the public to buy shares in a public
limited company.
Public limited company: a company whose shares are traded on a
stock exchange and can be bought and sold by the public.

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