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Chapter 1 - EnterpriseConsumer Goods: physical and tangible goods sold to the general public, these include durable and non-
durable goods.
Consumer Services: non-tangible products sold to general public (services)
Capital goods: physical goods used by industry to aid in the production of other goods and services eg.
machines or commercial vehicles
Creating value: increasing the difference between the cost of the purchase of bought in materials and the
price that these finished goods are sold for
Added value: the difference between the cost of purchasing bought in materials and the price the goods are
sold for
Economic problem: unlimited wants and limited needs = scarcity
Opportunity cost: the next best thing foregone
Entrepreneur: someone who takes the financial risk of starting and managing a new business venture
Social enterprise: a business with mainly social objectives that reinvests most of its profits into benefiting
society rather than returning to owners
Factors of production - CELL
Adding value
Prices are higher then the cost of bought in materials so as the business can survive
Characteristics of successful entrepreneurs
• Innovation
• Commitment and self motivation
• Multi skilled
• Leadership skills
• Self confidence
• Risk taker
Challenges faced by entrepreneurs
1. Identifying successful business opportunities
2. Sourcing capital
3. Determining location
4. Competition
5. Building a customer base and maintaining loyalty
Why some businesses often fail
- Lack of record keeping
- Lack of cash
- Poor management skills
- Changes in the business environment (technology, peoples tastes, different income groups)
Impact of enterprise on the country’s economy
• Employment creation
• Economic growth
• Business growth
• Innovation and technological change
• Exports (foreign currency)
• Personal development
• Increased social cohesion
,Social Enterprises
These are not charities but have different objectives from entrepreneurs, who’s motive is only profit. Their 3
common features are that they directly produce goods or provide services, have social aims and use ethical
ways of achieving these and need to make a profit in order to survive as they do not rely on donations.
Objectives
1. Economic
2. Social
3. Environmental
Chapter 2 - Business Structure
Primary sector business: involves the extraction of raw materials from the earths surface
Secondary sector business: manufacturing and production of products from the primary sector
Tertiary sector business: provides a service to consumers and other businesses
Industrialisation: when a sector changes from primary to secondary
De-industrialisation: when an economy changes from secondary to the tertiary sector
Public sector: organizations controlled by the govt
Private sector: businesses owned and run by individuals or groups of individuals
Mixed economy: includes both public and private sector businesses
Free-market economy: largely owned by private sector
Command economy: mainly run by the state
Sole trader: a business in which 1 person provides permanent finance and in return, has full control over the
business and profits
Partnership: a business formed by 2 or more people with shared capital investment and responsibilities
Limited liability: if the company falls into debt, the shareholders private assets will remain safe
Private limited company: a business owned by shareholders who are often friends or members of a family -
shares cannot be sold to the general public
Share: a certificate confirming part ownership of a company and entitling the shareholder to dividends and
certain other rights
Shareholder: a person who owns shares in a limited company
Public limited company: often a large business with the legal right to sell shares to the general public
(share prices are quoted on the stock exchange)
Franchise: a business that uses the name, logo and trading systems of an existing successful business
Joint venture: is when 2 or more business join together for a particular task and create a separate business
division to do so
Holding company: a business organization that owns and controls a number of separate businesses but
doesn’t unite them into 1 company
Public corporation: a business enterprise owned and controlled by the state (nationalized industry)
Industrialisation
+ National output increases, lower imports and higher exports, more jobs, more tax paid to govt, value
added to raw materials
-Movement of people into urban areas=overcrowding, multinationals are built
De-industrialisation
+ Rising incomes = higher living standards - this allows extra income to be spent on services rather than
goods
,Sole traders
+ Easy to set up, owner has complete control, all profits kept, freedom of time use, ability to establish close
relationships with customers, based on pure interests and skills of owner
-Unlimited liability, competition, huge responsibility, difficult to raise capital, lack of continuity
Partnerships
+ specialize, shared decision making, additional capital injected, losses shared, greater privacy and fewer
legal formalities than corporate organisations
-Unlimited liability, profits shared, no continuity, bound by 1 decision, not possible to raise capital by selling
shares
Limited companies
+limited liability, separate legal identity, continuity, owner able to retain control, raise capital from shares
sold to family/friends, greater status than unincorporated businesses
-legal formalities, capital raised limited, end of year accounts have to be prepared
Public limited companies
+ limited liability, separate legal identity, continuity, ease of buying and selling shares (encourages
investment), access to substantial capital
-many legal formalities, share prices subject to fluctuation, disclosure of information to shareholders and
public, risk of takeover
Franchises
+fewer chances of failure as business is well known, advice and training offered, national advertising paid
for, supplies obtained from established and quality checked suppliers, other branches in the same local area
are not allowed to be set up
-share of profits have to be sent to the franchisor, initial franchise license fee can be expensive, no choice o
supplies/suppliers, strict rules over pricing and layout (no freedom)
Joint ventures
+ Costs and risks are shared, different strengths may work well together, major markets may be in different
countries = more known worldwide
-Different management styles may cause conflict, errors and mistakes can lead to blaming of the other
business, the failure of one side can cause the whole project to be at risk
Public corporations
+ managed with social objectives rather than profit, loss making services will still be continued if the social
benefit is great enough, finance raised from govt.
-Inefficiency due to lack of strict profit motives, subsidies can discourage efficiency, govt. may interfere
, Chapter 3 - Size of business
Revenue: total value of sales made by a business in a given period of time
Capital employed: total value of all long term finance invested into the business
Market capitalisation: total value of a company’s issued shares
Market share: sales of a business as a proportion of total market sales
Internal growth: expansion of a business by means of opening new branches, shops or factories (organic
growth)
Measuring business size
• Number of employees - not appropriate for capital intensive firms
• Revenue
• Capital employed
• Market capitalisation - only used for public limited companies (current share price x total number of shares
issued)
• Market share - total sales of business/total sales of industry x100
• Number of shops/outlets
• Space occupied
Significance of small businesses
1. Jobs are created
2. Creates variety in market
3. Competition
4. Specialist goods supplied
5. Large firms of the future are small firms of today
6. May benefit from lower average costs
Government assistance for small firms
• Reduced corporation tax
• Loan guarantee scheme
• Information, advice and support provided
• Land provided at reasonable rent
Advantages of small businesses
1. Control can be retained
2. Adapts quickly to changing customer needs
3. Offers personal service
4. More ‘human’ business (better relationships with workers)
5. Family owned businesses are well motivated
Disadvantages
1. Limited access to finance
2. Large levels of responsibility
3. Greater risks as not diversified
4. Few opportunities for economies of scale
Advantages of large businesses
1. Can afford specialist managers
2. Cost reductions and economies of scale
3. Ability to set low prices
4. Access to several sources of finance
5. Risks spread as diversified
6. Can afford R&D into new products
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