GCSE BUSINESS STUDIES
KEY REVISION POINTS
UNIT 1: Introduction to Small Business
Unit 1 : Introduction to Small Business
revision points
Chapter 1: Businesses
 Goods
are physical products such as food, CDs and bikes.
 Services
are non-physical products where the supplier provides something specialised such
as accountancy, gardening and vet services. It is the biggest sector in the UK economy.
 Labour
is people who help make the end product, e.g. chefs.
 Raw
materials are items which help make the product, e.g. meat and vegetables in
pasties.
 Production
is a process where labour, equipment, raw materials and other resources
combine to make a product or provide a service.
 Customers
are the people or organisations that buy the product from sellers or suppliers.
 Consumers
are the people who use or ‘consume’ the final product. In some cases they
might be different to customers.
 Suppliers
A
are the people who provide raw materials or the product itself.
market is where the buyers and sellers come together.
 Closing
down is what happens if the business cannot keep going, usually if it is unable to
generate enough cash to pay its bills or if a loss is being made which cannot be
recovered.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
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Unit 1 : Introduction to Small Business
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Chapter 2: Understanding customer needs
 Market
research is a means of finding out customer needs.
 Primary
research is carried out by the business itself to produce first-hand information.
A
questionnaire is a form of primary research, finds data not already existing
A
survey is a form of primary research.
 Observation
is watching customers for habits and ideas. Can be a relatively inexpensive
method of research.
 Secondary
research is collecting data that somebody else has processed into information,
e.g. from the Internet.
 Desk
research is another name for secondary research.
 Quantitative
data is data that can be counted and from which conclusions can be
drawn, e.g. a trend.
 Qualitative
data is data which involve opinions, not restricted by choices. Generates ideas
e.g. about a new fashion style or why people buy a product.
 Focus
group are groups of individuals who have a common interest who give a group
opinion on something, e.g. about a new school logo.
 Respondents
are the people who answer questionnaires, or take part in focus groups.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 3
Unit 1 : Introduction to Small Business
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Chapter 3: Market mapping
A
market segment is part of the market which the business thinks will be most likely to buy
its product, where buyers have similar tastes or needs to each other, e.g. age, culture.
 Repeat
customers tell if the business has got the segment right and show if demand is real
or imagined.
 Market
mapping is a way to see where the business and its targets compares with the
competition.
 Gap
in the market is where a product does not yet met customer needs, chance for an
entrepreneur.
 Buying
habits help a business decide if a segment exists.
 Preferences,
like habits, will tell if there is a customer need for a product.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 4
Unit 1 : Introduction to Small Business
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Chapter 4: Competition
 Strengths
are what can give a business an advantage over its rivals.
 Weaknesses
are where competitors are likely to gain an advantage.
 After
sales service is the back up for customers that is given by a business. It can give a
business an advantage over its rivals if its after sales service is better.
 Suppliers
are needed by businesses. Suppliers provide the materials used by business to
make products or provide services.
 Branding
is what makes a product distinctive. It creates an identity for a product which
customers can associate with and recognise.
 Brand
image is how the business wants its product seen in the eyes of its customers, how
the customer sees it
A
product range is the variety of different products that the business has to offer. The
product range depends on what the business wants to achieve and may be designed to
target a range of different market segments.
 Costs
are what businesses pay out for the resources it needs to make its goods and provide
its services.
 Controlling
costs is an important way to help make a business more competitive.
 The
quality of the experience the customer has with the business is an important way for a
business to compete.
A
shopping experience, for example, is an example of invisible value which can give a
business a competitive edge.
 Expertise
is where a business has more knowledge than its rivals. Having more expertise
than competitors gives customers confidence.
 Reputation
is another form of invisible value, created by the business, given by the
customer.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
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Unit 1 : Introduction to Small Business
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Chapter 5: Added value
There are a number of features that can add value for a business.
 Convenience
– the ease with which products or services can be accessed, for example
where a supplier provides car seats to a manufacturer (B2B), or a local shop which stays
open until late at night to provide services to consumers (B2C),
 Speed
of service – for example, Screwfix pride themselves on speed of delivery – some
products can be ordered Sunday afternoon and delivered by 10.00am next morning!
 Branding
– making a product distinctive from others.
 Brand
image – something the customer recognises or associates with the brand, often (but
not always) the result of clever advertising.
 Quality
of service – can be what separates businesses which are similar.
A
unique selling point (USP) – the feature of a particular product or business that makes it
different from other but similar products.
 Quality
– customers pay for this, makes product last longer, work better and are less likely
to break down.
 Design
– can be a USP or be part of quality that meets customer need.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
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Unit 1 : Introduction to Small Business
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Chapter 6: Franchising
 Setting
up as part of a franchise gives a business the right to sell a tried and tested product.
The business may also get marketing support, a unique location where no other business
that is part of the franchise can operate and training for staff.
A
Franchisor sells the franchise.
A
Franchisee buys the franchise.
 The
business that buys into the franchise pays a fee or royalty, which is not returnable.
 Vetting
is done by franchisor to potential franchisees to check that they are maintaining
quality. This helps to keep standards up
 Benefits
of a franchise include greater advertising, training and equipment being provided,
using a known brand and on-going support.
 Drawbacks
of a franchise include never really owning the business, high investment at start
and being restricted to selling the franchise products.
 Location
could be important if a customer comes to the franchise, for example a
hairdressing salon, but may be less important if a franchise can go to customers like Merry
Maids.
 An
exclusive area is usually given to stop franchises trying to get the same customers. This
helps a franchise to grow.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 7
Unit 1 : Introduction to Small Business
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Chapter 7: What is enterprise?
 Risk
is the chance of failure or loss. It is something that business faces at all times and is
something that every entrepreneur has to consider when starting a new business. One of
the characteristics of entrepreneurs is that they are willing to take risks.
 Minimising
risk can be done by taking steps to plan carefully, do plenty of research, be
objective, cover problems and once set up, by offering more than one product so if one
fails another is successful.
 Entrepreneurs
need a positive outlook, the willingness to look at new ideas and look at how
they can work – to dwell on solutions rather than problems.
 Entrepreneurs
have good instincts – inner feelings that something will work. This makes the
risk worth taking.
 Entrepreneurs
show initiative – the determination to make things happen rather than sitting
back and doing nothing or allowing things to take their course.
 Goods
are physical products made by businesses and used by consumers.
 Services
are non-physical products provided by businesses and used by the consumers.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 8
Unit 1 : Introduction to Small Business
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Chapter 8: Thinking creatively
 Creative
thinking is a consideration that there is a better way, or a new or different use, for
something.
 Deliberate
creativity is the intentional creation of new ideas through recognised and
accepted techniques.
 Lateral
thinking is ‘thinking out of the box’, thinking around the problem, not necessarily in
sequence.
 Methods
of lateral thinking include blues skies thinking and the use of six thinking hats.
 Blue
skies thinking is open-ended thinking, not structured, but random ideas to bring out as
many thoughts as possible. It can lead to a solution or a new idea.
 Six
Thinking Hats examine six different ways to look at a problem.
 Competitive
advantage can be gained as a result of creative thinking. It allows a business
to get an edge on others, for example a better way of producing a product, a better
customer service or developing a unique selling point for a product. To be an advantage it
has to be both distinctive and defensible.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 9
Unit 1 : Introduction to Small Business
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Chapter 9: Questions to be asked
Certain questions must be asked and answered before starting up. Types of questions might
include:
 Why
do I want to set up in business?
 Why
do I want to make a change?
 Why
not, what’s stopping me, am I scared, is it something real?
 What
 How
do I want from the new business, what will it give me that I don’t have now?
will I do it, do I get facts and figures together to see if it will work?
 Where
will I locate, will I get help?
 When
is a good time to start?
 What
if I cannot get any customers, I get ill, the competition starts up and undercuts me?
 Why
has this type of business not been set up around here before?
 Why
not make a change and do something different?
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 10
Unit 1 : Introduction to Small Business
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Chapter 10: Invention and innovation
 Innovation
is bringing a new idea to the market – to take an idea and make it
commercially viable.
 Commercially
viable means that it can be produced at a cost that will enable the business
to charge customers a price they are prepared to pay which will allow the business to
make a profit.
 New
ideas can come about in different ways.
Through people’s hobbies, e.g. games.
Through a desire to try and improve an existing product, e.g. Dyson.
Through specific research to try to solve a problem or issue, e.g. the development of
new medicinal drugs.
By accident, e.g. Post-it notes.
 Research
& development helps develop new inventions by continuous improvement
 There
is always a risk with innovation, things can go wrong, e.g. good idea but not
practical. The business may lose money it has invested into the idea if it does not become
commercially viable.
 Protection
of inventions can be made through:
Patents – given for products or production processes.
Copyright – gives the right to produce, control and copy ideas or artistic works like books,
paintings, music and so on, solely to the individual or company that originally generated
the idea. Must acknowledge if used.
Trademark – given to the name of a product or a business.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
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Unit 1 : Introduction to Small Business
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Chapter 11: Taking a calculated risk
 Risk
relates to the loss or damage that can be incurred in setting up a business
Risk is part of any new business.
Risk can be reduced e.g. by research.
 Risk
analysis involves looking at pros and cons to get a ‘balance’.
 Viability
is the outcome of risk analysis. It helps with the decision about whether to go
ahead or not.
 Calculated
risk involves putting a numerical value (or probability) on the risk. Figures on the
rewards or costs help make a comparison with the risks.
 The
risk –reward ratio involves balancing the risks against the possible rewards to help make
a decision about whether to go ahead.
 Downsides
are what can go wrong, e.g. not enough customers, bad press, possible cash
losses and unlimited liability (sole trader).
 Upsides
are what can go right in a business – gaining customers, building loyalty and
generating profits.
 Cost/benefit
analysis is another name for risk analysis. If the value of the benefits is greater
than the value of the costs, then it can be worth proceeding.
 When
mistakes are made people must learn from these so they are not made again.
 Experienced
people who have already worked in the industry have a better chance of
survival because they can learn from their mistakes.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 12
Unit 1 : Introduction to Small Business
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Chapter 12: Important enterprise skills
 Enterprise
skills include planning, thinking ahead, seeing opportunities and showing drive
and determination.
 Seeing
opportunities involve being aware of what might work, and comparing
opportunities and deciding which one to pursue or which has the lowest risk
 Effective
planning involves looking ahead to see potential problems in the future to try and
take account of these problems before they arise such as , the need for cash from the first
day and maintaining/using competitive advantage.
 Thinking
ahead involves anticipating potential problems and opportunities in the future.
 Drive
and determination involves remaining focused in periods of setback, retaining belief,
thinking positively and making crucial business decisions before it’s too late.
 Making
connections involves the use of mindmaps, overviews, linked ideas and blue skies
thinking,
A
mindmap is a diagram that is used to record words and ideas connected to a central
word or idea. It can be used to analyse a person or a business.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 13
Unit 1 : Introduction to Small Business
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Chapter 13: Objectives when starting up
Financial objectives include the following.
 Survival,
usually, most crucially, in the first year.
 Income
(revenue). A business must get customers who will buy its product to earn an
income for its owners.
 Profit.
The income of a business, the money it gets in, must be more than the costs or
expenditure, the money it spends out, to make a profit.
 Wealth.
This comes from the profits of a business. It includes all the things a business owns
(its assets).
 Financial
security. This is where a business and its owners can pay all the overheads (bills),
make a profit, and have some in reserve for retirement and to pay for unexpected
emergencies.
Non-financial objectives include the following.
 Personal
satisfaction. This might be gained from doing what someone wants, when he or
she wants to. It could be from greater freedom of action. It might be to prove a point, to
satisfy a want or to do something special. For some entrepreneurs this could be more
important than wealth, although financial security is still needed.
 Challenge.
This could be setting up something that nobody else has thought of and can
link with personal satisfaction. It might be a chance to prove to others that something can
be done.
 Independence
and control. This could be to control your own time and the direction of
your business. Independence enables people to do what they want for themselves and
their customers when they see fit and best.
 Helping
others. Examples might be setting up a charity or helping to improve the area in
which a business operates by creating jobs, whilst still making money. This is often referred
to as ‘social enterprise’. Helping others still needs to have a financial objective behind it for
a business to succeed and be sustainable.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 14
Unit 1 : Introduction to Small Business
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Chapter 14: The qualities shown by entrepreneurs
Features of successful entrepreneurs include the following.
 Having
determination – being concentrated and strongly motivated to succeed.
Overcoming problems when they arise to keep the business going.
 Showing
commitment – being dedicated to the business and prepared to do whatever it
takes for success, even during difficult times.
 Taking
the initiative – deciding to do something about an opportunity and being prepared
to make the first move.
 Being
pro-active – being prepared to make things happen.
 Having
the ability and willingness to take risks.
 Being
a decision maker – having a plan and using it, and taking decisions based on sound
judgements.
 Having
the ability to plan – knowing what they want to achieve, mapping out how to
achieve this and organising so that objectives can be achieved.
 Having
powers of persuasion – the ability to encourage and convince people to do what
the entrepreneur wants.
 Showing
leadership qualities – having a vision, planning where a business is going and
guiding and motivating others to achieve this.
 Being
lucky – taking chances that often result in success.
 Showing
perseverance – continuing to carry on when things become difficult and not
giving up.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
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Unit 1 : Introduction to Small Business
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Chapter 15: Estimating revenues, costs and profits
 The
revenue of a business is the amount of money received from selling goods or services
over a period of time.
 The
revenue from each product or service is the money received from selling that good or
service. This is the selling price of the good or service.
 Total
revenue is the selling price of each product multiplied by the quantity of products or
services that are sold (the sales volume).
 Total
revenue = Price x Quantity is a formula that can be used to calculate total revenue.
 The
more goods or services that are sold, the higher will be the total revenue.
 The
higher the average price charged, the higher will be the total revenue.
 The
costs of a business can be fixed costs or variable costs.
 Fixed
costs do not change as more goods are produced or services are provided.
Examples include payments on a loan and insurance payments.
 Variable
costs change as more goods are produced or services are provided. Examples
include the materials, ingredients or energy used in production or the provision of services.
 Total
costs = Fixed costs + Variable costs.
A
business makes a profit when the revenues of a business are greater than its costs over a
period of time.
A
business makes a loss when the revenues of a business are less than its costs over a
period of time.
 The
total profit or loss of a business can be calculated using the formula: Profit/Loss = Total
revenue – Total cost.
A
business that carries on making losses over time may be forced to close down unless
changes can be made to prevent the losses.
A
business making a profit can use some of this money to ‘plough back into the business’.
This means paying for new investment and expanding the business.
 Profits
are an incentive for businesses to be successful.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 16
Unit 1 : Introduction to Small Business
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Chapter 16: Forecasting cash flows
 Cash
is notes and coins and money in the bank.
 Cash
flow is the flow of money into and out of a business.
 Inflows
(receipts) are cash coming into the business from owners, loans or cash from sales.
 Outflows
(payments) are cash leaving the business to pay for wages, equipment, bills and
materials.
 Net
cash flow is calculated by inflows minus outflows.
 If
inflows are greater than outflows, net cash flow in positive. If inflows are less than
outflows, net cash flow is negative.
A
negative net cash flow can be a problem as less money is coming into the business than
is going out.
 Without
cash, a business may no longer be able to pay its debts and may become
insolvent.
A
cash flow forecast is a prediction of how cash will flow through a business in a period of
time in future.
 The
opening balance in a cash flow forecast is the cash a business has at the start of a
month or other period.
 The
closing balance in a cash flow forecast is the cash a business has at the end of a
month or other period.
 The
closing balance shows the cumulative cash flow of a business.
 The
opening balance plus the net cash flow equals closing balance.
 The
closing balance in one month or other period becomes the opening balance in the
next.
 If
a business has a negative closing balance it will have a cash flow problem. It must avoid
this by raising sales revenue, reducing costs or putting money into the business from an
owner or from a loan.
 Selling
more goods brings cash into the business.
 Cutting
costs reduces the cash going out of the business.
 Paying
suppliers later for materials using trade credit reduces the cash going out of the
business immediately.
 Payments
using cash by customers increases the cash coming into the business
immediately.
 Buying
less stock reduces the cash going out of the business.
 Careful
planning is needed to avoid cash flow problems before they occur
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 17
Unit 1 : Introduction to Small Business
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Chapter 17: The business plan
A
business plan is a plan for the development of a business. It is a document which puts
together information showing how a business might survive in a competitive world.
A
business plan can be used to reduce risk and persuade stakeholders to support the
business.
 The
business plan has quantitative (numerical/financial) and qualitative features.
 Quantitative
features, allow a business to plan:
the estimated level sales and costs
the price to be set to make a profit
to ensure there is enough cash available to meet any debts over a period such as 12
months
the sources of finance to start up or expand the business.
 Qualitative
features, allow a business to plan:
- for market conditions (competition and demand, whether there are similar products
around, the closeness of similar businesses and whether demand is long-term or temporary)
- what suppliers will be needed, taking into account quality, price and reliability of
materials and equipment
- the type of staff that are required
- marketing and how it would best be carried out.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
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Unit 1 : Introduction to Small Business
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Chapter 18: Obtaining finance
 Obtaining
and using suitable finance is vital for getting started and developing a business.
 Long-term
and short-term finance methods have different uses.
Long-term sources of finance
 Share
capital. Provided by people who ‘buy’ a part of the business, becoming
shareholders. They are interested in a share of the profit, paid as a dividend. The money
stays in the business, as no repayments on the value of shares are made, but shares can
change hands. Ownership is spread.
 Venture
capital. These are professional investors who take a risk that a business will be a
success. There are no repayments of funds but venture capitalists hope to sell their share of
the business for a profit at a later date. Funds can come with strings attached.
 Mortgage.
Can be long term, e.g. 25 years, usually to buy property. Property is used as
security (also called collateral). Long-term funds spread repayments over time, helping
cash flow. The interest payment tends to be relatively high over the life of the loan.
 Loan,
typically for 1–5 years. A business must repay interest as well as the loan. Loans help
cash flow and can be used instead of own capital. A problem is that interest may be paid
on funds not being used. In addition, the interest rate can change and this can disrupt
planning.
 Leasing.
Renting of equipment for specific product, e.g. machine. Regular payments must
be made. Maintenance is done by the leasing company.
 Retained
profit. This is profit which is kept back in the business. It is the cheapest source of
finance as it is self-generated money. There is no interest and it can be used for any
purpose.
 Grants,
usually for a start-up or a specific development, e.g. new eco-friendly heating.
Often a one-off payment. There might be conditions that have to be met.
Short-term sources of finance
 Bank
overdraft. Taking out more from a current account than is in. Can be used for
emergencies. A business only pays interest on the amount overdrawn.
 Trade
credit allows a business to get goods now and pay later. This helps with cash flow.
No interest is charged. Usually given to businesses with a good reputation.
 Factoring.
'A business can get money immediately by selling unpaid invoices (short-term
debts) to a factor, which then chases up the unpaid invoices. This can provide immediate
cash and can be used if a business is desperate for funds. May be expensive and a factor
pays less than the full amount of the invoice.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
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Unit 1 : Introduction to Small Business
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Chapter 19: Customer focus and the marketing mix
A
business must have customers to survive.
 Customer
focus involves identifying, anticipating and meeting customer needs – paying
attention to what they want or need.
 Identifying
customer needs involves finding out what they want from a product (a good or
service).
 Anticipating
needs involves being at the forefront of fashion, being aware of market
changes and reacting effectively.
 To
meet customer needs, a business must make sure that its product does what consumers
want. Being consumer led means changing products in line with changes in consumer
wants and needs.
 Market
types can be:
• Product led, design then sell, e.g. highly technical products such as healthcare
equipment.
• Market led, produce to meet identified demand, e.g. changes in the way people listen
to music has brought about new products to meet those needs.
 The
marketing mix is the 4 Ps – Price, Promotion, Product, Place.
 Price
is the value that customers place on the product and which represents a measure of
value for money.
 Successful
products are often designed to meet customer needs and target the segment
of the market to which it is to be sold.
 Promotion
involves providing information about a product and persuading customers to
buy it. It includes advertising and other forms, such as point-of-sale promotions, free gifts,
trials, roadshows, user testing, competitions and sample products.
 Place
is about how the product is made available to customers, the distribution methods
and how convenient it is for customers to access the product.
 Differences
in the marketing mix can have different emphasis, e.g. existing market/low
price: new market/ emphasis on promotion, budgets and types of product.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
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Chapter 20: The importance of limited liability
 Unlimited
liability means that there is no legal difference between the personal finances of
the owner and the finances of the business. A sole trader can lose everything if there are
debts in the business.
 Limited
 Sole
liability means that you only risk losing what you have agreed to invest.
traders.
easy to set up
own the business
do not have to share ownership – able to have total control
can keep all the profits
Unlimited liability – could lose everything; their responsibility for the debts of the business is
‘unlimited’.
 Companies
– businesses where the owners and the business have a separate legal identity.
Shareholders have limited liability.
 Limited
liability and private limited companies.
lose only what they invested = ‘limited’
responsibility for repaying any debts is limited to that amount they have agreed to invest
finances of the business are legally separate from the finances of the owners
owners are called shareholders – can be a minimum of one (called a Single Member
Company).
less risky
share profits
share decisions
less control if more than one shareholder exists
control depends on proportion of shares.
 Privacy
will vary, depending on the nature of the business. Companies must file their
accounts with Companies House – the public can see this information (for a small fee).
Sole traders have more privacy – no need to file accounts.
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 21
Unit 1 : Introduction to Small Business
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Chapter 21: Start-up legal and tax issues
A
good business name will be different, unique, quirky, memorable, short, promote,
provide information and give an impression.
 Keeping
records is vital for a business. They provide evidence of what has happened; they
can be a legal requirement when calculating and paying tax.
 Poor
records, might lead to problems, e.g. unpaid tax, which might force the business to
close.
 HM
Revenue & Customs (HMR&C) is the government authority in the UK responsible for
collecting tax. Companies must register with HMR&C.
 VAT
(Value Added Tax) is a tax on the value of sales. The business is responsible for
calculating and completing VAT returns. This can be time consuming and complex.
 Income
tax.
Take tax due from workers through a system called Pay As You Earn (PAYE).
Sole traders pay income tax on NET earnings which means they deduct any expenses from
revenue.
 National
Insurance contributions (NICs), companies and employees pay two types.
Employees make a contribution.
Employers must also make a contribution.
NICs make employing a worker more expensive to a business.
Sole traders pay contributions on their earnings.
 Corporation
tax is a tax on the profits of limited companies.
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Chapter 22: Customer satisfaction
 Customer
A
service is about the experience a customer has in dealing with a business.
customer will have a positive experience if their expectations are met or exceeded.
 Customer
service includes the way the customer is treated, quality of products, staff
knowledge, how a business deals with customers and after-sales service.
 Good
customer service – convenient to use the service, orders dispatched accurately and
arrive on time, complaints dealt with immediately and meets customers’ expectations.
 Benefits
of customer satisfaction - reputation of a company, ‘word of mouth’ promotion,
good public relations (PR), generates sales, can help improve cash flow, repeat purchases,
cost effective way of generating sales, trust, loyalty and can help boost profit.
Chapter 23: Recruiting, training and motivating staff
A
job advert includes a brief description of the job and the sort of skills and experience
needed and is designed to make people aware that a job vacancy exists.
 Job
particulars include information about the business and the job, conditions of work, rate
of pay, hours of work, holidays and how to apply.
A
job description is sent out to applicants – it sets out the features of the job.
A
person specification sets out details of the sort of person needed for the job, e.g. their
previous experience, good computer skills, good communication skills, qualifications etc. It
helps to sort out applicants.
 Application
forms – business gets information it wants about applicants in standard format
– same type of information from all applicants is provided so it can be compared.
 CVs
include applicants’ education and employment history– gives applicant a chance to
‘sell’ themselves.
 Selection
involves shortlisting of candidates (selecting the candidates to be interviewed
from all the applications received), interviews and appointment – checking attitudes, skills
and references – choose ‘best fit’ candidate, check if applicant fits into a team.
 On-the-job
training – inside the business, learning by doing, alongside other staff, helping
towards profit.
 Off-the-job
training – outside the business, college/university/specialist training provider,
may be quite expensive for the business, time-consuming.
 Motivation
can take a number of forms.
Pay, incentives, targets.
Working conditions – clean conditions, uniforms, working at home, flexible hours.
Communication and keeping staff informed.
Empowerment – employees deciding best way to do things, taking ownership and
responsibility.
Fringe benefits – extra to entitlements, e.g. requests for time off, staff gym.
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 Legislation
deals with workers’ rights and employer rights.
No discrimination – age, sex, race or disability, same job – same money.
Paid regularly.
Holiday entitlement.
Health and safety, safe working environment, clothing, warning signs.
Trade unions, protect workers’ rights and employers.
 Other
rights
Maternity/paternity – leave for parents.
Directives from the EU, e.g. Working Time Directive limits working hours.
Chapter 24: Demand and supply
 Commodities
are raw materials like oil, gold and wheat, used to help make something
else, not an end product in themselves – their prices can be volatile, i.e. they can change
quickly and regularly.
 Demand
is what customers would like to buy given the income they have available in
relation to the price.
 Supply
 The
is what producers make and then are willing to sell at a given price.
market is where buyers and sellers meet to set prices that suit both.
A
commodity market is an organised market where representatives of buyers and sellers of
raw materials meet to set prices.
 Normal
(or goods) markets include all the places that bring together buyers of goods and
sellers – shops, market stalls, internet auction sites, catalogues, mail order companies,
mobile burger vans, cinemas, sports and concert venues etc.
 Price
the amount of money that an individual has to give up to acquire a good or service.
 In
a market the price is set where buyers are willing and able to pay to acquire the goods
and sellers are willing to sell what they have at that price.
 In
commodity markets prices can change all the time.
 Prices
in these markets depend on the factors affecting demand and supply.
 Demand
and supply can be affected by trends in fashions, economic activity, incomes,
expectations of consumers, factors affecting costs of production such as weather, war,
pests, disease, how easy it is to extract the commodity and so on.
 Normal
markets are associated with ordinary products, prices tend to be more stable,
customers ‘know’ prices and businesses may choose to absorb changes in commodity
prices and find other ways of cutting costs rather than raise prices in order to keep
customers.
 Price
takers are usually found in commodity markets – individual suppliers of commodities
have little control over the price they receive as they tend to be a very small part of the
total supply.
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Edexcel GCSE Business Studies
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 Price
makers are usually found in ordinary markets – a business can set its price by adding
value to get profit.
Chapter 25: The impact of interest rates
 Credit
is another word for loan. It is a means of getting something expensive now and
paying for it in smaller regular amounts over a period of time in the future.
 Those
lending money need to know that the borrower is credit worthy – that they will be
able to pay back the loan and the interest.
 Long-term
borrowing is usually for large fixed items e.g. machinery, sometimes agreed at a
fixed interest rate.
 An
overdraft is short-term means of helping cash flow. It is a loan to be used when needed.
It is a useful back up for businesses. It can be expensive but interest is only paid on the
amount overdrawn not the full limit.
 Interest
rates are the percentage reward to savers or paid on loans by borrowers.
 High
interest rates – good for savers, bad for borrowers.
 Low
rates interest – bad for savers, good for borrowers.
 If
interest rates rise it tends to discourage borrowing and reduce consumer spending – bad
for businesses.
 If
interest rates fall it can encourage borrowing and spending – good for businesses.
Chapter 26: The impact of exchange rates
 Exports
are what businesses sells abroad and which leads to money flowing into the UK.
 Imports
are what businesses and customers buy from abroad and which lead to money
flowing out of the UK.
 Exchange
rates show how much has to be given up of one currency to buy another
currency.
 The
exchange rate of a country is normally expressed as a ratio, for example, £1:$2. This
shows how many dollars £1 will buy.
 The
Pound Sterling is the currency in the UK. Its value goes up and down against other
currencies such as the dollar and the euro.
 The
pounds value changes like any other price – because of the changes in the demand
for the currency and the supply of it.
 Changes
in the value of the pound against other currencies have an effect on businesses
that trade abroad.
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 Trade
abroad might mean selling goods or services to buyers in other countries (exports) or
buying goods and services from abroad such as raw materials or component parts
(imports).
 If
there is a rise in the value of the pound against other currencies, £1 can be exchanged
for more of the currency, e.g. from £1:$1.4 to £1:$1.6. The effects of this are:
UK companies find it harder to export. Foreign buyers have to give up more of their
currency to get the same amount of pounds. For example, a product priced in the UK at £1
will mean the US buyer has to give up $1.4 before the change in exchange rates. After the
change they will have to give up $1.6 – it seems to be more expensive, therefore.
A rise in the currency means that export sales may fall.
UK companies buying from abroad will find that prices appear cheaper. The rise will mean
they have to give up fewer pounds to get the same amount of dollars.
A rise in the exchange rate means that imports to the UK are likely to increase.
This can help reduce costs if the imports are of raw materials or component parts used in
production.
 If
there is a fall in the value of the pound against other currencies, £1 can be exchanged
for less of the currency, e.g. from £1:€1.50 to £1:€1.10. The effects of this are:
UK companies find it easier to export. Foreign buyers have to give up fewer euro (for
example) to get the same amount of pounds. For example, a product priced in the UK at £1
will mean the European buyer has to give up €1.50 before the change in exchange rates.
After the change they will have to give up only €1.10 – it seems to be cheaper, therefore.
A fall in the currency means that export sales may rise.
UK companies buying from abroad will find that prices appear more expensive. The fall will
mean they have to give up more pounds to get the same amount of euro.
A fall in the exchange rate means that imports to the UK are likely to fall.
This can help businesses who face competition from imported goods.
A fall in the value of the pound might also lead to increased costs if the imports are of raw
materials or component parts used in production.
 The
size of the effects depends upon:
how much trade the business does abroad
how big the changes in the exchange rate are.
Chapter 27: The impact of the business cycle
 Economic
 The
growth refers to an increase in the level of economic activity in an economy.
changes in economic activity are referred to as the ‘business cycle’
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 The
business cycle has different stages.
Growth – incomes going up, better health, living longer, more luxuries, better standard of
living, demand is increasing.
Downturn – less income, some jobs lost, luxuries cut back, people less confident (not sure
about jobs), won’t take risks on loans, demand falls, slow growth in economy.
Recession, bottom of cycle, worst position, high unemployment, increase in the number of
businesses that have to close. People change their spending habits and focus on what they
need rather than what they want. Demand falls – especially for luxuries, economy actually
shrinks – economic activity is less than previous years.
Recovery, some growth as output rises, demand increases, more bought on credit,
businesses show profit, customers start buying ‘wants’
 Problems
in a downturn.
Product sales might slow down, especially ‘luxuries’, e.g. new, high value, fashion, not
needed.
Financial structure, may not have good back up profits, cash flow might dry up, cannot
afford wages, too many loans – cannot repay, businesses can become insolvent.
Difficult to find new business and custom – competition is fierce.
May be lots of firms looking to cut prices to tempt buyers – some businesses not able to cut
prices to compete – especially small businesses.
 Survival
– options.
Cut costs, e.g. lay off staff, cut wages.
Sell assets if possible and not needed for recovery.
Reduce prices– needs high margin (added value) to start with, reduces profit, but not so
much that costs are not covered.
Entrepreneurs will survive if they have the right skills, belief, drive, determination, ambition
and remain flexible.
 Problems
during growth.
May not be able to meet demand
May need more resources – additional workers, new premises, more stock etc.
May need to try to find finance to invest in expansion
Small firms may not be able to afford to get finance to expand – demand for loans may
push up interest rates
 Considerations.
How long will growth continue?
Will additional costs of expansion be a burden in future?
How will a business cope if a slowdown does come?
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Unit 1 : Introduction to Small Business
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Chapter 28: Business decisions and stakeholders
 Stakeholders
 Owners
are any group with an interest in the activities of a business.
are stakeholders who want profit from the business and a return on investment,
 Managers
are stakeholders who run the business – their salary may be linked to profits so
need success but may also be interested in other things than profit – their status and
position, for example.
 Workers
are stakeholders who work for owners – they need the business to be a success to
keep their jobs. They get a wage in return for the work that they do for the business.
 Customers
are those who buy the products of a business – the lifeblood of a business, no
customers = no business. Customers can be consumers (in a B2C business) and businesses
(called B2B).
 Suppliers
provide materials and components to other businesses (customers), at the start of
the process chain – suppliers need their customers to be successful for repeat business.
 Government
has a double interest in businesses – success = more tax income, failure =
more benefits to pay out if unemployment rises.
 The
local community has a double interest in business; more jobs = good, may be wrong
image or add to pollution of the area = bad.
 Stakeholders
can have conflicting objectives, e.g. a chemical factory expands and offers
new jobs, local community unhappy – house values may fall, health may be affected by
pollution, but workers would gain jobs and spend money in local businesses.
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Edexcel GCSE Business Studies
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