AS/A Level Business Revision: Opportunities and Functions

Enterprise, Stakeholders and Business Plans

• Enterprise: Defined as when an entrepreneur takes a risk to set up and run a business selling goods or services.
• Entrepreneur: A risk-taker who sets up a business based on personal experiences or hobbies. Characteristics include: risk-taker, self-determination, self-confidence, good judgement, creativity, use of initiative, and being a self-starter. Motives include financial reward, independence (being your own boss), and the desire to help others.
• Small and Medium Enterprises (SMEs): Defined as enterprises employing fewer than 250 persons with an annual turnover not exceeding $50\,million$ euros.
• Economic Impact of SMEs: They represent $99\%$ of all UK businesses and employ over $60\%$ of private sector workers. They provide vital tax revenue for schools/hospitals and opportunities for stakeholders.
• Industrial Sectors:     * Primary Sector: Extraction of raw materials (e.g., farming, oil, mining).     * Secondary Sector: Conversion of raw materials into finished goods in a factory setting.     * Tertiary Sector: Shops and services selling goods to the public.
• Stakeholders: Individuals or groups with a personal interest in a business.     * Shareholders: Seek dividends.     * Employees: Seek job security and high pay.     * Customers: Seek low prices and quality products.     * Others: Suppliers, managers, banks, and local communities.
• The Business Plan: A document preparing for the future start of a business. It identifies USPs, assists in securing bank loans, and acts as a monitoring and motivational tool.     * Components: Executive summary, Business overview, Market research/strategies, Management structure, Financial forecasts (break-even, budget, cash flow, profit expectations), and Start-up finance details.     * Guidance Sources: High street banks, accountants, small business advisors, and government agencies like the Prince’s Trust.     * Limitations: Success depends on accuracy and quality of research. It is difficult to predict competitor actions, new entrants, or economic shifts (e.g., recession).

Market Analysis and Market Segmentation

• Market: A place where buyers and sellers meet to exchange goods/services for money. Types include local/global, mass/niche, consumer/trade, product/service, and seasonal.
• Market Size: The total volume or value of sales of all products in a market.
• Market Growth Rate: Calculated as: $\text{Market Growth Rate} = \frac{\text{Change}}{\text{Original}} \times 100$. Example: If sales fall from $2.5\,million$ to $2.2\,million$, change is $-0.3\,million$. $\frac{-0.3}{2.5} \times 100 = -12\%$.
• Market Share: Calculated as: $\text{Market Share} = \frac{\text{Company Sales}}{\text{Total Market Sales}} \times 100$. Example: If a company has $15\%$ share and $£200,000$ in sales, $1\% = £13,333$, so total market size is $£1,333,333$.
• Market Segmentation: Breaking down a market into groups with similar characteristics (age, gender, income, location, ethnicity).     * Benefits: Better consumer understanding, increased sales/profits via targeted design, prevents wasted promotion, and identifies new segment needs (e.g., gym classes for seniors).     * Drawbacks: Customers do not always behave as expected (e.g., low-income buyers of luxury goods), behavior changes over time, and some markets are hard to segment (e.g., bread).

Market Structures and Competition

• Monopoly: One firm (theoretically) or a firm with >$25\%$ market share (e.g., Tesco, NHS). Features high barriers to entry, potential for high prices, and low quality.
• Oligopoly: A market dominated by a few big firms (e.g., banks, cinemas). High barriers to entry. Firms avoid price wars and focus on non-price competition (branding, advertising, location).
• Monopolistic Competition: Many small, differentiated firms (e.g., fish and chip shops). Low barriers to entry. Compete on non-price factors like marketing and customer service.
• Perfect Competition: Many identical small firms (e.g., fruit/veg stalls). Very low barriers to entry. No brand differentiation; firms are price takers determined by supply and demand.

Consumer Protection and Market Dynamics

• Consumer Protection: Managed by the Office of Fair Trade (OFT).     * Consumer Rights Act 2015: Right to return faulty goods for full refund or if quality is unsatisfactory.     * Consumer Protection from Unfair Trading Regulations 2008: Prohibits false advertising and offensive content.     * Consumer Credit Act 1974/2006: Controls lending and requires transparency in interest charges.
• Price Determination: Determined by the intersection of Demand (willingness/ability to pay) and Supply (willingness to sell at a price).     * Demand Shifts (Right/Increase): Population rise, increased advertising, rise in substitute prices, income rise, fashion trends, lower interest rates, fall in complementary good prices.     * Supply Shifts (Right/Increase): Higher productivity, lower indirect taxes, more firms, technological advancement, increased subsidies, good weather, lower production costs.

Elasticities

• Price Elasticity of Demand (PED): $\text{PED} = \frac{\%\text{ change in Demand}}{\%\text{ change in Price}}$. Results are always negative.     * Elastic ( < -1 ): Demand is highly responsive. Common for luxuries or products with many substitutes. To increase revenue, firms should lower prices.     * Inelastic ( 0 to -1 ): Demand is unresponsive. Common for necessities or high brand loyalty. To increase revenue, firms should raise prices.
• Income Elasticity of Demand (YED): $\text{YED} = \frac{\%\text{ change in Demand}}{\%\text{ change in Income}}$.     * Inferior Goods ( < 0 ): Demand falls as income rises (e.g., value brands).     * Normal Inelastic ( 0 to 1 ): Necessities; demand rises slowly with income.     * Normal Elastic ( > 1 ): Luxuries; demand rises significantly with income.

Market Research

• Primary Research: First-hand data (interviews, questionnaires, focus groups, observations). It is up-to-date and specific but expensive and time-consuming.
• Secondary Research: Existing data (internet, census, books, magazines). It is cheap and quick but may be out-of-date or non-specific.
• Quantitative vs. Qualitative:     * Quantitative: Numerical data; easy to compare but lacks "why."     * Qualitative: In-depth opinions; explains motivations but is difficult to compare.
• Sampling: A group representing the target market.     * Random Sampling: Equal chance for every population member.     * Quota Sampling: Specific segments are selected to match the business's customer profile (e.g., selecting university students if they comprise $75\%$ of customers).

Business Legal Structures

• Sole Trader: Single owner. Keeps all profit and has full control, but faces unlimited liability and difficulty raising finance.
• Partnership: Two or more owners. More skills and capital, but faces potential disagreements and unlimited liability.
• Private Limited Company (Ltd): Shares sold to family/friends. Limited liability and protection of company name, but involves strict legal filing requirements and capital limits ($£50,000$).
• Public Limited Company (PLC): Shares traded on stock exchange. Can raise massive finance and seen as low risk, but vulnerable to buyouts ($51\%$ shares) and must publish accounts publicly.
• Liability:     * Unlimited Liability: Owner is personally responsible for all debts; assets (house, car) can be seized.     * Limited Liability: Owner only loses the capital they invested.
• Not-for-Profit Entities:     * Social Enterprises: Profit used for community benefit (e.g., The Big Issue).     * Cooperatives: Owned by members/employees (e.g., Co-op).     * Charities: Exist for social causes (e.g., Oxfam, RSPCA).     * Societies: Clubs for shared interests.

Business Location, Revenue and Costs

• Location Factors:     * Quantitative: Land/labour costs, transport costs, expected revenue, break-even forecasts.     * Qualitative: Quality of local workers, infrastructure, owner preference, local planning laws.
• Financial Formulas:     * Revenue: $\text{Selling Price} \times \text{Number of Customers (Output)}$.     * Fixed Costs (Overheads): Costs that do not vary with output (rent, salaries, rates).     * Variable Costs (Direct): Costs that vary with output (raw materials, piece-rate wages).     * Total Costs: $\text{Fixed Costs} + \text{Variable Costs}$.     * Profit: $\text{Total Revenue} - \text{Total Costs}$.

Break-even and Contribution

• Contribution per Unit: $\text{Selling Price} - \text{Variable Cost per Unit}$.
• Break-even Point: The level of output where total revenue equals total costs. No profit or loss is made.
• Break-even Formula: $\text{Break-even Units} = \frac{\text{Fixed Costs}}{\text{Contribution per Unit}}$.
• Margin of Safety: The difference between actual sales and the break-even point.
• Break-even Analysis: Useful for "what-if" scenarios and securing finance, but assumes prices/costs are constant and is difficult for multi-product firms.

Marketing Function

• Approaches:     * Product Orientation: Focus on the product's quality and features.     * Market Orientation: Focus on customer needs/wants.     * Asset-led Marketing: Focus on core strengths (tech/infrastructure).
• Marketing Mix (4Ps): Product, Price, Promotion, Place.
• Product Life Cycle (PLC): Stages include Development (high costs, no sales), Introduction (slow sales, high promotion), Growth (profits rise, break-even), Maturity (sales stabilize, intense competition), and Decline (sales fall).
• Extension Strategies: Modifying products, changing image (e.g., Lucozade from illness to energy), or new advertising to delay decline.
• Boston Matrix:     * Star: High share, high growth. Needs high promotion.     * Cash Cow: High share, low growth. Generates cash for other products.     * Problem Child: Low share, high growth. Needs research/investment.     * Dog: Low share, low growth. Usually withdrawn.
• Pricing Strategies: Penetration (low price to enter), Skimming (high price for unique goods), Cost-plus (adding markup to unit cost), Competitive (matching rivals), and Psychological (e.g., $£9.99$).
• Promotion:     * Above-the-line: Mass media (TV, internet) targeting everyone.     * Below-the-line: Targeted (BOGOF, PR, direct mail, personal selling).
• Place (Distribution): Traditional (Producer -> Wholesaler -> Retailer -> Consumer), Modern (Producer -> Retailer -> Consumer), and Direct/E-commerce.

Human Resources Department

• Flexible Working: Includes flexihours, home-working, part-time, job sharing, Zero-hour contracts, and multiskilling. Supported by technology like cloud networks and mobile apps.
• Workforce Planning: Forecasting future staff needs. High labour turnover increases recruitment costs.
• Recruitment/Selection: Internal (promotion) vs. External (new blood). Selection involves interviews, work trials, and personality testing.
• Training: Induction, On-the-job (manager support), Off-the-job (university/college), and Apprenticeships.
• Appraisals: Superior, Peer, Self, or $360\,degree$ assessment. Used for setting targets and identifying training needs.
• Organizational Structures:     * Tall: Many layers, narrow span of control.     * Flat: Few layers, wide span of control. Uses delayering (removing middle management).     * Matrix: Employee belongs to a functional department and a project team (two bosses).
• Motivational Theorists:     * FW Taylor: Scientific management, piece rate, money as motivator.     * E Mayo: Human relations, social needs, teamwork.     * A Maslow: Hierarchy of Needs (Basic, Safety, Social, Esteem, Self-actualisation).     * F Herzberg: Two-Factor Theory (Hygiene factors stop demotivation; Motivators like achievement/responsibility create motivation).     * Vroom/Porter/Lawler: Expectancy Theory; effort is based on perceived outcomes.
• Management Styles: Autocratic (top-down), Democratic (majority rule/delegation), Paternalistic (decisions in workers' interest), Laissez-faire (minimal leader input), and Bureaucratic (strict rules).
• Leadership Theories:     * McGregor: Theory X (workers are lazy/need control) vs. Theory Y (workers enjoy work/seek responsibility).     * Fiedler Contingency Theory: Effectiveness depends on matching the leader's personality (task vs. person-focused) to the situation.
• Industrial Relations: Trade Unions use collective bargaining and industrial action (strike, go slow, work to rule). ACAS (Advisory Conciliation Arbitration Services) helps resolve disputes via conciliation or arbitration.

Operational Function

• Adding Value: $\text{Selling Price} - \text{Cost of Inputs (Variable Costs)}$. Achieved through branding, service, and convenience.
• Production Methods: Job (unique/custom), Batch (groups of identical items), and Flow (mass/continuous).
• Productivity: $\text{Total Output} / \text{Number of Workers}$.
• Capacity Utilisation: $\frac{\text{Current Output}}{\text{Maximum Output}} \times 100$. Ideal is $90-95\%$.
• Technology: Computer Aided Design (CAD), Computer Aided Manufacturing (CAM), Robotics, and ICT.
• Lean Production: Aimed at minimizing waste. Includes JIT (Just-in-Time), Kaizen (continuous improvement), Cell production, and Time-based management.
• Quality Systems:     * Quality Control: Checking for defects at the end of production.     * Quality Assurance: Self-checking throughout the process to get it "right first time."     * TQM (Total Quality Management): A culture where every member of staff is committed to quality.
• Stock Control: Reorder level, Lead time (delivery time), and Buffer stock (emergency stock).
• Economies of Scale: Falling average costs as a firm grows (e.g., purchasing discounts, financial, marketing, managerial).
• Diseconomies of Scale: Rising average costs once a firm gets too large (communication, coordination, and motivation problems).

Financial Function

• Budgets: Future financial plans (Income, Expenditure, and Profit budgets). Used for control and target setting.
• Sources of Finance (Established Business):     * Short-term: Overdraft, Trade Credit, Leasing, Debt Factoring (selling debts to a bank for around $85\%$ cash instantly).     * Internal: Owners' capital, Retained profit, Sale of assets.     * Long-term: Share capital, Bank loans, Venture Capital.
• Cash Flow Forecast: Predicts cash inflows (sales, loans) and outflows (wages, raw materials) to identify surpluses or shortages.
• Income Statement (Profit and Loss):     * Gross Profit: $\text{Revenue} - \text{Cost of Sales}$.     * Net Profit: $\text{Gross Profit} - \text{Expenses}$.
• Profitability Ratios:     * Gross Profit Margin \%: $\frac{\text{Gross Profit}}{\text{Sales Revenue}} \times 100$.     * Net Profit Margin \%: $\frac{\text{Net Profit}}{\text{Sales Revenue}} \times 100$.