AQA GCSE Business Unit 1 - Business In The Real World

Why Are Businesses Set Up

• someone is making a Good or Service they think people will oay for

• In order to benefit others

• To fill a gap in the market

Sectors of The Economy

• Primary

  • Produces natural resources/raw materials e.g. crude oil

• Secondary

  • Manufactures goods using things from primary sector e.g turning crude oil into jet fuel

• Tertiary

  • Provides services for businesses and consumers. e.g. a cargo/ passenger flight between two places

Reasons why people become entrepreneurs

• want to be their own boss

• identified a gap in the market

• to pursue an interest

• to take home all of the profit

Qualities needed by an Entrepreneur

• Hardworking

• Organised

• Innovative

• Willingness to take risks

Factors of Production

• Land - natural resources which are scarce

• Labour - work done by people who contribute to the production process

• Capital - equipment and factories which contribute to the production process

• Enterprise - People who create things from the other three factors

Opportunity Cost

The positive impact given up by doing one thing over another

Sole traders

• easy to set up

• you are your own boss

• keep all the profit

• unlimited liability

• no legal identity

• can be hard to raise funds

Partnerships

• 2-20 Partners

• work can be shared between people

• more capital

• partners legally responsible for eachothers actions

• more disagreements

• often have unlimited liability

• profits are shared

Private Limited Companies (LTD)

• limited liability

• incorporated

• easier to gain capital such as loans

• cant undergo a hostile takeover

• expensive to set up

• legally obliged to publish yearly accounts

Public Limited Companies

• More capital can be raised from the sale of shares

• limited liability

• Incorporated

• easier to gain captial such as loans

• can be hard to get many shareholders to agree

• can suffer a hostile takeover

• profits often shared with more people

• legally obliged to publish yearly accounts

Not-For-Profit Businesses

• dont make a profit for owners

• Generate enough to cover costs with surplus being reinvested

• sometimes have charitable status which gives tax breaks

• hard to manage due to uncertainties about finance

Stakeholders of a Business

• Suppliers

• Workers

• Shareholders

• Community where the business is based

• Customers

• Government

Profit

• Profit is the sum of Total Costs subtracted from the revenue

  • revenue is the amount of sales multiplied by the price

  • Total costs = Fixed + Variable Costs

    • variable costs are ones that change based on the firm’s output

Business Plans

• What a business will do and how it aims to do it

• forces the owner to think carefully about what the business will do

• can be shown to financian backers

• Contain

  • Personal Details

  • Mission Statement

  • Objective

  • Product Description

  • Production Details

  • Staffing rquirements

  • Finance

Factors affectng Locations of Businesses

1. Distance from suppliers - the further away you ae the higher delivery costs will be

2. Labour supply - defines wether wages will be high or low

3. Competition

4. Location of Market - the further away you ae the higher delivery costs will be

5. Cost - the cost of having a high traffic location may outweigh the potential profits

Economies of Scale

• Purchasing economies of scale

  • as a business grows the average unit cost of each product falls, usually because bulk buying is taking place

• Technical economies of scale

  • a firm can afford to buy more advanced machinery

  • it can make more goods for less

Diseconomies of scale

• growth also brings diseconomies of scale

  • harder to communicate with more workers

  • hader and more expensive to manage

  • production process may become more difficult to coordinate

Internal expansion

• low risk but slow

• can be done via:

  • opening new stores

  • e commerce - selling products via the internet

  • outsourcing - paying another firm to carry out tasks

Franchising

• Company sells other entrepreneurs the right to use their brand in return for a percentage of the profits

• leads to quick expansion that can be far away from the company’s base

• could lead to a worse image if the franchisee doesnt work responsibly