3.1 Business in the real world

The purpose of business activity, the role of business enterprise and entrepreneurship, and the dynamic nature of business.

Students need to be aware of the impact business in the real world has on the four functional areas of business:
  • business operations
  • human resources
  • marketing
  • finance.

3.1.1 The purpose and nature of businesses

Content

Additional information

  • Purpose of business
  • Reasons for starting a business
  • Basic functions and types of business
  • Business enterprise and entrepreneurship
  • Dynamic nature of business

Students should be able to:

  • understand what a business is and the reasons for starting a business (including producing goods, supplying services, distributing products, fulfilling a business opportunity and providing a good or service to benefit others)
  • understand the difference between goods and services, needs and wants
  • understand the meaning of factors of production – land, labour, capital, enterprise
  • define opportunity cost
  • define the three sectors of primary, secondary and tertiary and give examples of types of business that operate in each sector
  • understand the term enterprise and what is meant by an entrepreneur
  • outline the characteristics of an entrepreneur, such as hard working, innovative, organised and willingness to take a risk
  • outline the objectives of an entrepreneur, including to be their own boss, flexible working hours, to pursue an interest, earn more money, identify a gap in the market and dissatisfaction with current job
  • understand that businesses face a constantly changing business environment due to changes in technology, economic situation, legislation and environmental expectations.

3.1.2 Business ownership

Content

Additional information

  • Sole traders
  • Partnerships
  • Private limited companies (ltd)
  • Public limited companies (plc)
  • Not-for-profit organisations

Students should be able to:

  • understand the different legal structures that businesses adopt
  • analyse the benefits and drawbacks of each legal structure (including issues such as management and control, sources of finance available, liability and distribution of profits)
  • understand the concept of limited liability and which legal structures benefit from this
  • evaluate which legal structure would be most appropriate for a variety of business examples, including new start-up businesses and large established businesses.

Students are not expected to have an understanding of the legal process of incorporation.

3.1.3 Setting business aims and objectives

Content

Additional information

  • What are business aims and objectives
  • Purpose of setting objectives
  • Role of objectives in running a business
  • Changing objectives
  • Use of objectives in judging success

Students should be able to:

  • understand the main aims and objectives for businesses: survival, profit maximisation, growth (domestic and international), market share, customer satisfaction, social and ethical objectives and shareholder value
  • understand the role of objectives in running a business
  • understand how and why the objectives set will differ between businesses (reasons include the size of the business, level of competition faced and type of business (not-for-profit organisations))
  • understand how and why the objectives set may change as businesses evolve. Students should consider how the objectives of larger more established businesses might differ from smaller start-up businesses, eg becoming the dominant business in the market, international expansion, increasing shareholder value and ethical and environmental considerations
  • understand the success of a business can be measured in other ways than profit.

3.1.4 Stakeholders

Content

Additional information

  • Main stakeholders of businesses
  • Objectives of stakeholders
  • Impact of business activity on stakeholders
  • Impact and influence stakeholders have on businesses

Students should be able to:

  • understand what is meant by a stakeholder and who the main stakeholders of a business are, including owners, employees, customers, local community and suppliers
  • understand stakeholders’ main objectives including maximising pay for workers, minimising environmental impact on local community and high dividend payments for owners
  • understand the impact and influence stakeholders have on businesses and their objectives and how businesses may face conflict between stakeholders.

3.1.5 Business location

Content

Additional information

Factors influencing the location decision of a business

Students should be able to understand the factors that influence where a business is located, including proximity to the market, availability of raw materials, labour, competition and costs.

3.1.6 Business planning

Content

Additional information

  • The purpose of business planning
  • The main sections within a business plan
  • Basic financial terms
  • Basic financial calculations

Students should be able to:

  • understand the reasons why businesses create plans, including importance in setting up a new business, raising finance, setting objectives and detailing how functions of a business will be organised
  • understand the main sections of a business plan
  • analyse the benefits and drawbacks of business planning
  • understand the difference between variable costs, fixed costs and total costs
  • understand the concept of revenue, costs, profit and loss.

Students will not be expected to write a business plan.

3.1.7 Expanding a business

Content

Additional information

  • Methods of expansion
  • Benefits and drawbacks of expansion
  • Economies of scale
  • Diseconomies of scale

Students should be able to:

  • discuss the advantages and disadvantages of methods of growth
  • understand the methods used by businesses when expanding (organic growth through franchising, opening new stores and expanding through e-commerce, outsourcing and external growth through mergers and takeovers)
  • understand the benefits of growth in terms of unit cost advantages due to economies of scale and the drawbacks of growth due to diseconomies of scale
  • understand the meaning of purchasing and technical economies of scale
  • understand that with growth businesses increase the risk of diseconomies of scale occurring due to poor communication, coordination issues and reduced staff motivation
  • calculate and interpret average unit costs.