IGCSE Business Studies Revision Booklet

IGCSE Business Studies
Key Revision Booklet
Includes key definitions plus key

facts which must be learnt for the
IGCSE Business Studies Exam
Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize
Page 1
1.1.1 Business activity as a means of adding value and meeting customer needs
Adding Value: The difference between the cost to produce and the selling
price as a product moves through chain of production a product is changed
and thereby the price of the product increases e.g. from a stick of wood to
a chair
Scarcity and Choice
All things are scarce (except the air). There is a limit to how much we can
have. As a result people, businesses and consumers must make choices. In
business these choices based on scarcity are called Opportunity Costs.
Opportunity Costs
All people and businesses have wants and needs. A need is something that is
considered essential and a want is something that would be beneficial but we
could do without.
However all goods and services are scarce i.e. There is not an unlimited
supply of everything and as such everyone has to make choices. Making a
good choice will however mean that you will give up one thing in favour of
getting another. This is known as an opportunity cost.
Definition to learn
The opportunity cost is the loss of the good or service forgone
Example
Consider a can of coke and a bar of chocolate. Both are priced at KSh 40.
You want to buy both but you only have 40Ksh in your pocket and so you can
only buy one.
If you decided you buy the can of coke then the opportunity cost would
be the bar of chocolate.
All organisations need to make opportunity cost decisions such as a
government may have to decide whether to improve the infrastructure in a
country or build and run a new hospital. If it chooses to build and run a
hospital then the opportunity cost of the hospital would be improve
infrastructure in the country.
Page 2
1.1.2: Classification of local and national firms into primary, secondary and tertiary sectors
Production
Production is all activities that help to provide goods and services that
people want or need.
Factors of Production
These are the resources needed for a business to exist.
Land: This can be rented or bought. It also includes natural resources
such as oil, forests, and rivers.
Labour: This includes all the people who are paid for their services
and also people who offer their services for free (e.g. voluntary
workers or the family of a business owner.)
Capital: These are the physical equipment, tools and machinery
needed to run the business. Capital also includes money that is used to
set the business up.
Entrepreneurial Skills: This is the person who develops the business
idea and runs the business. An entrepreneur takes the risks, has the
ideas and reaps the rewards through profit (or suffers any losses!)
All of the factors of production work together to allow the business
functions to happen. Business functions include
o Production
o Research & Development
o Finance
o Marketing
o Administration
o Human Resources.
When these come together the business is able to produce the goods or
services that it set out to achieve.
Page 3
Goods And Services

Consumer Goods: These are goods that are provided for the general public.
Consumer goods fall into two categories: Durable goods and non-durable
goods.
Durable Goods: Goods that are used repeatedly over a period of time.
Although they will eventually need replacing through wear and tear they are
not used up. Examples of durable goods include:
Tables
Computers
Cars
Mobile Phones
Non-Durable Goods: Goods that are used up and need replacing. In the
shops these are known as fast moving consumer goods FMCGs. Examples
include:
Food
Washing powder
Toothpaste
Ink Cartridge
Capital Goods. These are goods purchased by businesses to produce the

goods or services that they will eventually sell. Capital goods are one of the
factors of production. Examples include
Vehicles
Fixtures & Fittings
Machinery
Premises
Many goods fall into different categories depending on where they are in
the production chain. For example a computer in a home is a consumer
durable but to a computer shop it is a capital good. Shampoo at home is a
consumer non-durable but it is a capital good in a hairdressers.
Services: This is an important sector of production that enables industry to
run efficiently. It includes all businesses providing services to industry such
as selling (a restaurant will buy meat form a butcher), to transport (a
manufacturer needs to get its products to their customers either at home
or abroad), banking and insurance and tourism.
Page 4
Sectors of Production
Production is sometimes divided up into: 1) Primary production means work that gets natural resources from
the land or sea.
Primary industry is sometimes known as the extractive industry
o Examples include: - Farming, fishing, mining, oil refinery and forestry
2) Secondary Production means work that turns natural resources
into finished goods
Secondary industry is sometimes called manufacturing and construction
industry
o Examples include: - factory work, building work, baking, tailoring and
making anything
3) Tertiary production means work that provides services rather than
goods.
The tertiary industry can also provide a service to the other twos sectors of
production.
o Examples include: - Teachers, clowns, doctors, beauticians and
transportation
Industrialisation and De-Industrialisation
Industrialisation is when a country experiences an increase in
secondary production.
De-industrialisation is when a country experiences a decline in
secondary production.
Page 5
Sectors of Industry
Who carries out business activity? This falls into three main sectors
The Private Sector
This includes goods and services provided by businesses that are aimed
mainly at making a profit. The business owners are either individuals (sole
traders), small groups of business people (partners) or business people who
join together to form a joint stock company (i.e. a limited company).
The Public Sector

This includes goods and services provided by the government. These goods
and services may be supplied either for a profit or not for a profit.
Not for profit public sector goods: Some goods are provided by the
government because they are considered general needs that will benefit
everyone but if left to the private sector they either would not be provided
or would be too expensive for many people to buy. Examples include: o The Armed Forces
o International Consulates
o Infrastructure and road lighting.
o Education
Some services are provided by both the

public and private sector and people can
choose if they can afford to pay for it.
o Health
Sometimes the government has another priority other than profit such as
safety (public transport) or quality (an publicly owned TV station such as the
BBC).
Page 6
For profit public sector goods: Sometimes a government will help a business
to become competitive. For profit businesses that are owned by the
government will either be useful to the government because it employs lots
of people and so keeps unemployment down Usually the government will out
such a business that looks like it could go bust and will then sell it back to
the private sector when the business is considered to be a going concern
(i.e. able to survive on its own)
The Voluntary Sector
This is also known as the not for profit sector, Non-Governmental

Organisation (NGO) or charitable sector. These organisations exist to raise
money for good causes or draw attention to the needs of disadvantaged
groups in society. Examples include AIDS charities, The Red Cross and
Oxfam. The aim of this sector is to run with minimal costs and to pour as
much of the funding into helping the charity. Many staff will therefore work
for free, although larger organisations will employ administrators or many
pay survival wages to some staff. In some countries Non Government
Organisations (NGOs) will exist to ensure that funding that is donated goes
to the intended cause.
Funding of the sectors of production

Sector
Public
Private
Voluntary
Funding
Taxation
Selling goods and services
Charitable donations
Page 7
1.1.3 Business growth and measurement of size
Growth and Measurement of Size

The growth of a business is when it expands in size. The size of a business
can be measured by the following means:
Sales turnover (or sales revenue)

Number of employees
Market share
Number of outlets (e.g. shops)
Profit
Businesses either grow organically or externally (by acquisition and mergers.)

Organic growth means the business grows by expanding its sales or their
operations and is financed through its own profits.
Acquisitions and mergers are when the business joins or buys other
businesses, not necessary of the same type.
Businesses may wish to expand for the following reasons:
Economies of scale
2. Increased market share
3. To survive a very competitive market.
1.
A business can grow organically in the following ways:

Lower price
b) Increase advertising
c) Sell in different location
d) Sell on credit
a)
Page 8
Mergers and Acquisitions

A merger is where two or more businesses AGREE to join together to
become one larger firm. An acquisition is when one firm BUYS another firm.
When a one business buys another it is possible that the acquisition or
merger integrates the new product with the existing product. This
integration can either be vertical or horizontal integration.
Mergers and acquisitions are an important option for larger businesses that
wish to grow rapidly. However, they are a high risk strategy it is easy to
buy the wrong business, at the wrong price for the wrong reasons!
The advantages of mergers and acquisitions are:
1.
2.
3.
4.
5.
Economies of scale
Greater market share for horizontal integration, which means the
business can often charge higher prices.
Spreads risks if products different.
Reduces competition if a rival is taken over.
Other businesses can bring new skills and specialist departments to
the business.
The disadvantages of mergers and acquisitions are:

Diseconomies of scale if business becomes too large, which leads to
higher unit costs.
2. Clashes of culture between different types of businesses can occur,
reducing the effectiveness of the integration.
3. May need to make some workers redundant, especially at management
levels this may have an effect on motivation.
4. May be a conflict of objectives between different businesses,
meaning decisions are more difficult to make and causing disruption in
the running of the business.
1.
Page 9
Constraints on Growth (Things stopping growth)

Though a business may wish to grow in size, there may be reasons why it
cannot do this:
1.
Financial limitations a business may not be able to raise the

necessary finance to grow any bigger perhaps it has not made enough
profits to generate the cash or the bank is not keen to lend it more
money at the moment.
2.
Size of the market there is often a limit to number of people who

are willing to buy the type of product that the business is producing
e.g. a printing press manufacturer will know that there are only a small
number of publishers in the UK who will be able to buy the product.
3.
Government controls means that a business cannot necessarily have

more than 25% of the market share. This often arises when one
business joins with another. If the government thinks it is not in the
public interest to have such a large business, then the joining
together may not take place.
4.
Human resources are limited in terms of the skills available. Especially

in more specialised areas it may be difficult to find enough qualified
staff in the area to expand the business. In the South East of
England, where
Page 10
1.1.4 Key features of own national economy
Kenya Key Economic Facts
Population: 40,000
Unemployment: 40%
60% of population are classified employed earning below the poverty
level
Average earnings $1,600 per person which is in the lowest 10% of the
world.
Growth rate 2.6% (2009)
Inflation rate: 10% (2009)
Trends in the Sectors of Production
Country
UK (2006)
Malaysia (2005)
Sudan (1998)
Kenya (2007)
Source CIA
Primary
1.4%
13%
80%
75 %
Secondary
18.2%
36%
7%
8%
Tertiary
80.4%
51%
13%
17%
Note that the higher the level of tertiary activity the higher the
development of the country.
Even though the primary sector is the biggest sector in Kenya it only
amounts to 19% of the countrys income. 17% is secondary whilst 64%
comes from the tertiary sector.
Tourism is Kenyas biggest export.
Page 11
1.2.1 Business objectives and their importance
Objectives: A specific statement that should be quantifiable.

Objectives should have SMART criteria
S
M
A
R
T
Specific with regarded to exactly what is needed

Measurable. (i.e. able to be judged)
Agreed with people that will be responsible for achieving the goals.
Realistic to staff of achieving the goals
Timetabled to state when a target should be reached by.
Level of importance / Conflicts

Profit
Short term or long term?
New businesses may not be as concerned with profit but
as they grow and get more established the business will be
more focused on profit.
A sole trader, partnership or small private limited
company will be less profit motivated as they may be
motivated by keeping their jobs for themselves and their
families whereas a large Ltd or public limited companies are
responsible to shareholders to make a profit.
Growth
Growth brings economies of scale.
If the economy is good then a business may be growth
orientated whereas during a recession a business may drop
growth as an objective and focus on survival.
Survival
New business may aim to survive or break even
Economic situation a firm may wish to survive a
recession or drought
A competitor opening up nearby may make a business
focus on survival rather than profit or growth.
Social,
Some businesses (mainly in developed countries) are
Ethical &
more concerned with their impact on communities than
Environmental profit. Although these businesses will have owners that
aims
want a finance return they do not want it at any cost and
so will accept a lower return with a clean conscious!
Being social and responsible can be a USP. If your
competitors promote this then you may have to also.
Page 12
1.2.2 Stakeholders and their differing objectives
Definition: A stakeholder is an individual that has an interest in

and is affected by an organisation.
Stakeholder
Stake
Shareholders /
To receive high profits / dividends
Owners
Self satisfaction being your own boss

Employment (their own job and that of their
family)
Managers
Their jobs and any bonus related pay

To have their own reputation well known
To make decisions and to set and control the
overall direction of the firm
Employees
To get the best possible wage / salary possible
(Also Trade Unions)
To have job security

To have good working conditions
Financiers (banks,
trade creditors and
To be paid on time and so be able to meet their

own debts
other lenders)
Customers
To be able to buy the products or services

being sold
To buy products and services at the best
possible price
To have quality assurance in products and
services bought
Page 13
1.2.3 Aims of private and public sector enterprises
Comparison Of Public Sector and Private Sector Objectives

The Objectives of the Public
Sector
1. Economic Growth
The Objectives of the Private

Sector
1. Profit
2. Low inflation rates
2. Growth and increased market

share
3. Low levels of unemployment
3. Break even
4. Exchange rate stability

4. Survival
5. Balance of payments equilibrium. 5. Social
and
considerations
ethical
Differing Objectives of State and Private Sector Organisations

The main objective of the state owned sector is to provide a service or
to help with meeting the governments own objectives.
The main objective of most private sector firms is to make a profit.
The Objectives of the Public

Sector
Affect on businesses
Economic Growth
More people with money to spend on

goods and services.
More technology to improve
production
Low inflation rates
Avoids frequent changes in prices.

Makes setting wages easier to
predict
Low levels of unemployment
More people employed to spend

more on goods and services.
Consumers can afford to buy more
expensive goods.
Businesses can get involved in
international trade without
worrying that the cost of imports
and exports will keep changing.
Exchange rate stability
Page 14
1.3.1 Government influence over decision making by using economic policy measures
The government can influence the actions of businesses and buying

behaviour in a number of ways.
A. Legislation laws that affect the way that a person or business can
act. This might include what can be produced, how production should
be monitored (e.g. health & safety laws), how and business can
advertise and the quality of goods and services produced
B. Fiscal Policies
(i) Taxation
Taxation comes in two forms:
1) Direct taxation taxation on income and profits (income tax, National
Insurance and corporation tax).
Corporation tax (tax on businesses profits) will reduce profits so a
business can reduce dividends or increase price to keep profit levels high.
Income tax will reduce the amount of money a customer has to spend.
2) Indirect taxation taxation on spending (VAT, excise duty).

VAT will increase the price of a good or service but the business will not
benefit from it.
(ii) Government Spending

Governments will spend money on health, education, defence, roads, law and
order and on supporting businesses and local communities.
Businesses can benefit direct or indirectly from the rest of the spending.
Governments might provide money in the form of grants, subsides and

tax breaks (paying less tax than you should) to encourage businesses to
grow.
Governments also provide support through advisory bodies coordinated by

the Department of Trade and Industry, especially for small businesses.
Page 15
Businesses can also benefit indirectly because of the huge spending that
governments undertake. For instance the increases in health spending will
benefit businesses that produce medical products or services to hospital
(e.g. cleaning), roads will benefit businesses from better infrastructure,
money spent on police make it safer to trade etc.
C. Monetary Policies the government or central bank will change

interest rates to influence the amount of money available to spend in
an economy
Interest rates
Credit is borrowed money. Many small firms depend on credit such as bank
loans and overdrafts to help finance their business activities.
Interest is the reward for lending and the cost of borrowing.
An increase in interest rates can affect a business in two ways:
Customers with debts have less income to spend because they are paying
more interest to lenders. Sales fall as a result.
Firms with overdrafts will have higher costs because they must now pay
more interest.
The impact of a change in interest rates varies from business to business.
Firms that make luxury goods are hit hardest when interest rates rise.
This is because most customers cut back on non-essentials when their
incomes fall as a result of interest rate rises.
Page 16
1.4.1 Mixed and market Economies
No two economies are organized in exactly the same way, but all have to
solve three fundamental problems
1. What should be produced in the economy?
2. How should production be organised?
3. For whom should production take place?
Should everybody be entitled to an identical share of production, or should
some receive more than others? The gap between rich and poor has widened
considerably over the last twenty years and different market economies try
to address this
Free Market Economy
Private ownership of all
economic resources
Resources go towards
making what consumers
want to buy
Mixed Economy
Price determined by
market forces
Planned Economy
State owns and or
controls most economic
resources
Central state planning
decides what should be
produced and how it
should be distributed
Consumers have little
choice and prices do not
reflect want customers
want.
Most economies are based on the mixed economy whereby

1. Many products only produced by private businesses e.g. mobile
phones, cars etc.
2. Most essential services are provided by the state. These are known as
Public goods. Examples include police, fire service, defence, street
lights etc.
Page 17
3. Many important services that can benefit society are provided by the
state and private businesses. These are known as Merit goods.
Examples include school, health, broadcasting.
4. The state will monitor private businesses activities through law governing
pollution, health & safety, employment etc.
1.4.2 International trade (access to markets/tariffs)
International trade is the exchange of goods and services between

different countries. UK business can compete against foreign rivals by
offering better designed, higher quality products at lower prices.
Kenyan Exports are products made in Kenya and sold overseas, while
Kenyan imports are products made overseas and sold in the Kenya.
Protectionism: The restriction of imports into a country by government

measures
Reasons For Protectionism
Protects Kenyan businesses from extra competition

Helps new Kenyan businesses to develop before they face competition
Helps protect Kenyan jobs
Prevents foreign countries dumping lots of cheap imports into Kenya
Prevents imports of harmful or desirable goods
Trade Barriers (Methods of Protectionism)

1. Tariffs These are taxes on imported goods. They raise the price to
customers and make them less attractive
2. Quotas These are limits on the quantity of a product that can be
imported into a country e.g. 100,000 cars
Free Trade: Trade without any protectionist / trade barriers between
countries
1. Protectionism keeps Kenyan firms away from genuine competition. They
may become lazy and inefficient
2. Free trade forces Kenyan firms to produce quality goods and services as
they face much foreign competition of a better quality.
Page 18
3. If Kenya puts up trade barriers then other countries are likely to

retaliate (i.e. do the same to them).
4. Free trade encourages firms to export and import. This should encourage
a greater choice for consumers and a higher standard of living
5. Trade barriers increase the cost of trading. For example, a tariff would
mean that Kenyan firms and consumers may have to pay more for imports of
raw materials or consumer goods
East African Union (EAU)
Kenya is a member of the East African Union which is working towards free
trade within e number of East African countries. At present the EAU agree
tariffs and quotas so that all products entering the EAU have the same
restrictions placed on then from one country to the next. Barriers between
EAU countries have been reduced e.g. free movement of labour (you dont
need a work permit to work in Uganda) and reduced tariffs.
1.4.3 Problems of entering new markets abroad
1. Legislation (laws): Businesses may find that the country they want to
enter has many restictive laws. For example some environmental laws may
cause a firm to locate in a country that is less concerned about the
environment.
Page 19
2. Language barriers: Mainly an influence for a small to medium sized

business. As less staff are employed the business may not wish to locate
to a country with a different first language.
3. Cultural Barriers some countries close shops on a Saturday, others a

Sunday. Some types of advertising are acceptable in one country
compared to another.
4. Awareness of local business opportunities who to speak to, where the

target market might be located, how the market abroad differs from the
one in Kenya, general lack of contacts.
1.4.5 Concept of exchange rates and how changes in them affect business
The exchange rate is the price of foreign currency one pound can buy. If
the current exchange rate is two dollars to the pound, then one pound is
worth two dollars.
The price of Kenyan exports and imports is affected by changes in the

exchange rate.
E.g.:
An increase in the value of the Shilling means one hundred shillings buys
more dollars. The pound has appreciated (gone up) in value and become
stronger.
100KSh = $1
Or
100KSh = $1
100 KSh = $1.50
75KSh = $1
On the second example (as exchange rates will be shown to the $1 in your exam)
it now only costs 75KSh to buy a dollar whereas before it cost 100KSh
It is now cheaper to buy imports (maybe a companies raw materials sourced
abroad) but a businesses goods will be more expensive for foreigners to buy (as
Page 20
if a product is priced 100KSh the USA firm will need to pay $1.33 to buy the
shillings)
A fall in the value of sterling means one pound buys fewer dollars. This
means the pound has depreciated (fallen) in value and become weaker.
Kenyan exporters benefit from a fall in the value of the shilling. However
Kenyan firms importing raw materials, components or foreign-made goods face
higher costs and must either put up their prices or reduce their profit margin.
2.1 Ownership and internal organization
2.1.2 Types of business organisation

(sole trader, partnerships, limited companies, franchise, joint venture)
2.1.5 Limited and unlimited liability
Business Ownership
Unlimited Liability: The owner of the business has the same legal identify to
the business and is therefore can lose his/her personal possessions to cover
the debts of the business if it goes into liquidation.
Limited Liability: A person has a separate legal identify to the business and
is therefore only responsible for the amount of money s/he invested in the
business even if the business goes into liquidation.
Page 21
1. Sole Trader (Sole Proprietor): A person who owns his or her own
business. This person is responsible for all the decisions within the
business, including employees and s/he is liable for any debts. A
sole trader has unlimited liability and thereby is the same legal
entity as the business
Advantages
Personal control
All profit go to the owner
Direct contact with customers
maintained
Accounts are not published
Disadvantages
Unlimited liability
Difficult to raise capital
Long hours and business worries
Owner is expected
specialist in all areas
to
be
2. Partnership: Business owned by between 2 20 people who set up

a business together. They share responsibility and control. Most
partnerships have unlimited liability and thereby is the same legal
entity as the business
Advantages
Greater specialisation
Additional capital
Sharing ideas
Disadvantages
Unlimited liability
Decisions may be slow as more
people
More opportunities to disagree
More scope for holidays, sickness Profits must be shared

etc.
3. Limited Companies: Companies that are owned by shareholders.
Profits
are
distributed
(usually)
annually
through
dividends.
Shareholders make decisions about the running of the business at an

Annual General Meeting (AGM) though a board of directors runs day-
Page 22
to-day control of the business. There are two types of limited

company
a private limited company (LTD), which can only sell shares to

friends and family
a public limited company (PLC), which sells shares on the Stock

Exchange. Formal documents must be produced before a limited
company can begin trading: -
Advantages
Limited liability
Disadvantages
Conflict can arise between owners
and managers
Large scale production is available
Danger of poor communication
Ill health does not affect the By law annual accounts must be
business
produced and published
Easier to raise large amounts of Higher rates of tax than for sole
capital
traders and partnerships
Shareholders cannot be sued
personally
Differences Between a Private & a Public Limited Company

Private Limited Company
Shares can only be sold to family &
friends
Capital raising potential can be
limited.
Owners tend to be more in control
of the business and can be less
profit motivated.
Operations influenced by the
owners who are not answerable to
the media.
Public Limited Company

Shares can be sold on the Stock
Exchange.
Vast amounts of capital can be
raised.
Owners can be extremely divorced
from the business profit
motivated.
Media can be highly influential in
the business operations.
Page 23
Franchise
An entrepreneur can opt to set up a new independent business and try to win
customers. An alternative is to buy into an existing business and acquire the
right to use an existing business idea. This is called franchising.
o
A franchisee buys the right from a franchisor to copy a business format.
And a franchisor sells the right to use a business idea in a particular

location.
Opening a franchise is usually less risky than setting up as an independent
retailer. The franchisee is adopting a proven business model and selling a
well-known product in a new local branch
Advantages of Franchising
Disadvantages of Franchising
The franchisee is given support by Cost to buy franchise can be very

the
franchiser.
This
includes expensive (McDolands on Oxford
marketing and staff training.
Street In London cost 1.2 million!
But some such as a car wash
franchise can be very cheap)
The franchisee may benefit from Have to pay a percentage of your
national advertising and being part of revenue as a royalty payment to the
a well-known organisation with an business you have bought the
established
name,
format
and franchiser from.
product.
Less investment is required at the Have to follow the franchise model,
start-up stage since the franchise so less flexible. You would probably
business idea has already been be told what prices to set, what
developed
advertising to use and what type of
staff to employ.
A franchise allows people to start If one outlet of the franchise gains a
and run their own business with less poor reputation (say through bad
risk. The chance of failure among service) then this affects attitudes
new franchises is lower as their towards all other outlets.
product is a proven success and has a
secure place in the market
Page 24
Joint Venture
A joint venture occurs when two or more businesses agree to run a separate
business or project together. Often the joint venture will be a new company
in which the joint venture partners invest
The pros and cons are similar to that of a partnership
2.1.3 Growth of multinational companies
A multinational (MNC) is a business which operates in more than one

country
Benefits of MNCs
Drawbacks of MNCs
Employment
Ability to create jobs leads to Unemployment can be created in the
increased GNP & improved standard host country due to increased
of living in the host country
competition.
Technology & Expertise
Multi-nationals may introduce new Some multi-nationals bring trained
technology, production processes and staff with them and do not train
management styles.
staff in the host country and only
using local staff for low paid,
unskilled jobs.
Social Responsibility
Some Multi-nationals so not care Some multi-nationals take their
about the environment of the host social responsibly seriously and help
country and at times flouting the finance projects such as build new
lack of legislation related to health, roads.
safety and the environment and child
labour etc.
Profit
Often a multi-national will not keep If the host country has lower levels
profits in the host national but will of tax than others then tax will be
send them back to the originating declared and paid in their country.
country.
Page 25
2.16 Internal Organisation
Functional Activities In Business

1. Marketing. This means trying to bring your product to the attention of
buyers and make more people buy it. This makes Revenue and (hopefully)
profit.
2. Production. This means making the product you are selling.
3. Purchasing. This means buying all the different inputs the business needs
in order to do its work.
4. Human Resources. This means looking after your workers and their
needs. The point of this is to improve motivation which improves productivity
so more product is made. When this extra product is sold this means
Revenue and profit.
5. Finance. This means looking after all the money needed to run the
business.
6. Research & Development. This means trying to make existing products
better and also trying to come up with new products.
7. Logistics/Transport. This means moving around inputs and outputs from
where they are made to where they are needed.
8. Management. This means planning for the future, making decisions about
the present, and organising the business in the most efficient manner.
9. Administration. This means looking after the day-to-day needs of the
business and making sure everything runs smoothly.
Page 26
2.1.4 Control and responsibility
Hierarchy: The order or levels of management of a business, from the

lowest to the highest. The hierarchy of a business shows the chain of
command.
Chain of Command: The way authority and power are passed down in a
business. The chain of command shows the span of control.
Span of Control: The number of subordinates working under a superior.

A narrow span of control indicates close supervision, tight control and
better co-ordination of subordinates. Likewise communication is more
efficient.
A wide span of control allows for better decision making by subordinates

which links to motivation theory. Costs of supervision will also be lower.
Page 27
Delegation: passing authority to complete a task from a superior

(manager) to a subordinate (someone below the manager). Responsibility
is not passed down so the manager must be careful to trust the delegate
to do the job right.
2.1.7 Internal and external communication

2.1.8 Internal communication (effective communication and its attainment)
Types of communication
Internal communications happen within the business.
External communications take place between the business and outside

individuals or organisations.
Vertical communications are messages sent between staff belonging to

different levels of the organisation hierarchy.
Horizontal communications are messages sent between staff on the

same level of the organisation hierarchy.
Formal communications are official messages sent by an organisation, eg

a company memo, fax or report.
Informal communications are unofficial messages not formally approved

by the business, eg everyday conversation or gossip between staff.
A channel of communication is the path taken by a message
Page 28
Effective communication
Communication makes a big impact on business efficiency. Effective
communication means:
Customers enjoy a good relationship with the business, eg complaints are

dealt with quickly and effectively.
Staff understand their roles and responsibilities, eg tasks and deadlines are
understood and met.
Staff motivation improves when, for instance, managers listen and respond
to suggestions.
Barriers to effective communication

A balance needs to be struck in communication between management and
staff.
1. Insufficient
communication leaves staff 'in the dark' and is
demotivating. Excessive communication leads to information overload,

eg when staff find hundreds of messages arriving in their in-tray each
day.
2. Too much paperwork or too many emails can lead to miscommunication

and inefficiency
3. Communications fail when a message is unclear or the receiver does

not understand technical jargon. Selecting the right medium is
Page 29
important. Messages may never be received if they are sent at the

wrong time or to a junk email folder.
4. The result is inefficiency and higher costs, as more resources are

needed to achieve the same result.
5. Training staff to select an appropriate medium and send clear,

accurate, thorough messages will improve the quality of
communications, especially if there is an opportunity for feedback.
Page 30
2.2.1 Use of funds
Why business needs finance

Finance refers to sources of money for a business. Firms need finance to:
1. Start up a business, eg pay for premises, new equipment and
advertising.
2. Run the business, eg having enough cash to pay staff wages and
suppliers on time.
3. Expand the business, eg having funds to pay for a new branch in a
different city or country.
4. New businesses find it difficult to raise finance because they usually
have just a few customers and many competitors. Lenders are put off
by the risk that the start-up may fail. If that happens, the owners
may be unable to repay borrowed money
2.2.2 Short- and longterm financial needs
2.2.3 Sources of internal and external funds (short- and longterm)
Source of
Finance
Retained Profit
Description
This is when a business decides not to pay all profit after
S/T
tax to its shareholders or owners but will instead save up

to invest in future business projects.
Partnership Funds
This is where a partnership or Ltd will look for new
L/T
or share issue in a partners or shareholders amongst family and friends to

Private Limited
invest in the business and thereby have some control in
Company
the running of the business.
Page 31
Share Issue on
the Stock
Exchange.
This is where a Public or Private Limited Company makes
L/T
shares available for sale on the stock market. A share

issue is an external source of finance which dilutes
ownership of the business but allows for large amounts of
capital to be raised.
Overdraft
This is where the bank allows a business to spend more
S/T
than is in their bank cheque account for a short period of

time. The bank overdraft will be repaid and reborrowed
regularly. The bank will charge interest on a bank
overdraft which will reduce profit in the business.
Bank Loan
This is where a bank will allow a business to borrow a sum
L/T
of money over a medium to long period of time. The loan is

repaid in installments, which affects cash flow. Often a
bank will require collateral (security) on a loan and will sell
the assets offered as collateral if the loan is not repaid.
Repayment affects cash flow
Debenture
A debenture is an unsecured loan to a business. The
L/T
business pays interest to the debenture holder at agreed

intervals and the whole loan repaid at the end of an agreed
period of time often very many years. Debentures are
usually traded like shares on eth stock exchange. They
have less impact on cash flow than bank loans which are
repaid slowly in installments.
Page 32
Factoring
Where a business sells its debtor list to a factoring
S/T
company who will collect the money owed to the business.

The factoring company will charge up to 20% of the value
of debts owed to the business but will save the business
time in chasing debts and waiting for trade debtors to pay
them on eth due date. It creates instant liquidity.
Trade Credit
This is where businesses agree with other businesses to
S/T
pay for stock and finished goods at a later date when the
firm has sold the goods or services to the next stage in
the chain of production. Often businesses give a buyer up
to 4 weeks to pay but likewise this business may have been
allowed 4 weeks to pay their supplier.
Sale and Lease
A business may sell assets it owns and use the money from
Back
the sale in their business. The business will then lease
S/T
(hire) assets from another business. Leasing can be

expensive but the leasee often pays for repairs and
updates and also ensures the business does not have money
tied up in assets it may not use often.
2.2.4 Factors affecting the methods of finance chosen
1.
2.
3.
4.
5.
A business will selct the most appropriate method of finance based on

Size of the business
Capital needed,
length of time money needed for
risk
Page 33
3.1.1 Role of marketing
Marketing is meeting the needs and wants of the consumer

3.1.2 Market research (primary and secondary)
o Market research is gathering information about consumers,

competitors and distributors within a firms target market in order to
identify consumers buying habits and attitudes to current and future
products.
o Secondary Research is data that is used even though it has been
collected for another purpose e.g. government statistics. (Desk
Research)
o Primary Research is gathering data first-hand that is specific to the
issue being investigated. (Field Research)
Factual information is called quantitative data. Information collected about opinions and
views is called qualitative data.
Types of research
Secondary Research includes

Trade Press (e.g. The Grocer)
Trade Associations (e.g. Society of Motor Manufacturers and Traders)
Market Intelligence reports (e.g. Mintel, Keynotes)
Government statistics (e.g. Social Trends, Household Expenditure
Reports, Census)
Company records
Primary Research includes
Observation
Interviews
Consumer groups
Postal or telephone surveys
Test marketing
Page 34
Pros & Cons of Primary & Secondary Research
Pros
Cons
Secondary Research
Primary Research
Often obtained without Can aim questions directly at
cost
your research objectives
Good overview of a market
Latest information from the
marketplace
Usually based on actual
Can assess the psychology of
sales figures or research on the customer
large samples
Data may not be updated
regularly
Not tailored to your own
needs
Expensive, but reports on
many different
marketplaces
Expensive over 5,000 per

survey
Risk of questionnaire and
interviewer bias
Research findings may only be
usable if comparable back data
exists
3.1.4 Market segmentation
Market Segmentation Breaking a market down into groups of consumers

with similar characteristics
Target Marketing Aiming the product or service at consumers in a
particular market segment.
Consumer profiles
Age
Lifestyle
Income
Geographic Location
Gender
Page 35
3.1.5 Mass market; niche market
Niche marketing is a business strategy of devising and selling products

specifically for a small, unexploited part of a market.
Mass marketing is devising product with mass appeal and promoting them
to all types of customer.
Features of mass marketing

1. The creation of everyday brands
2. Brand names often become the known name e.g. Hoover (vacuum
cleaner) and Barcardi (white rum)
3. Marketing economies of scale.
4. Global marketing (with some adjustments to suit local conditions)
Examples of mass marketing: Coca-Cola, McDonalds, Levis
Features of niche marketing
1. Specialised product.
2. High level of product differentiation. (i.e. a USP, branding or
something that makes the product different to the norm.)
3. High price and low sales
Examples of niche marketing: Clinique perfumes, Braeburn Schools
Advantages of Niche Marketing
Whilst there are few competitors
businesses can sell at high prices
and high profit margins as
customers will pay high prices for
exclusive products.
Some large firms will have a range
of exclusive products that have
status and image alongside mass
marketed products.
(E.g. a car manufacturing company
making special editions of highly
priced cars plus the family saloon)
Advantages of Mass Marketing

Economies of scale and so mass
marketing has lower costs of
production.
Fewer risks than niche marketing as

the business involved in mass
marketing can usually change
production relatively quickly if
demand falls. The niche market
however could suffer if consumer
tastes change.
Page 36
3.1.6 Marketing mix
The marketing mix is the mixture of factors through which the firm hopes
to sell its products to its chosen market. These are known as the Four Ps
product, price, place and promotion.
3.1.7 Product (design, brand, packaging, life cycle)
Product
A product is a good or a service that is sold to customers or other
businesses. Customers buy a product to meet a need. This means the firm
must concentrate on making products that best meet customer
requirements. Firms can be market or product orientated.
Market orientation: producing products and services which satisfy eth
want and needs of the market.
Product Orientation: Producing products and services based on
innovation which consumers are then persuaded to buy
A business needs to choose the function, appearance and cost most likely to
make a product appeal to the target market and stand out from the
competition. This is called product differentiation.
How product differentiation is created:
Establishing a strong brand image (personality) for a good or service.

Making clear the unique selling point (USP) of a good or service, for
example, by using the tag line quality items for less than a pound for a chain
of discount shops.
Page 37
Offering a better location, features, functions, design, appearance or selling

price than rival products.
Packaging will help a firm target a specific market such as childrens
(cartoon), adults, families (good for you), colour (cheap or expensive)
Size will also target a market family or childrens or business size
Product Life Cycle
1.
2.
3.
4.
5.
6.
7.
8.
Research & Development

Launch
Growth
Maturity
Saturation
Decline
Extension Strategy
Withdrawal
In the launch and growth stages sales rise. In the maturity stage, revenues
flatten out.
Getting a product known beyond the launch stage usually requires costly
promotion activity.
At some point sales begin to decline and the business has to decide whether
to withdraw the item or use an extension strategy to bolster sales.
Extension strategies include updating packaging, adding extra features or
lowering price.
Page 38
3.1.8 Price (price elasticity of demand, pricing methods and strategies)
Price
Cost Plus Pricing

When a business adds a percentage mark up to the average cost of
producing a product.
This method of pricing is the most common but can cause problems when
operated in a competitive market as the final price could be higher than
competitors and therefore sales would be low or lower than competitors and
therefore the business will not make as much profit as it could.
Competitive Pricing
Methods of pricing based upon the prices charged by other competitors.
Price Maker: A company that can decide upon the price becaseu it has the
market share. Often benefits from economies of scale and so can sell
cheaper than competitors. E.g Nakumatt
Price Taker: Unable to compete at a lower price than the big firms and
cannot charge a higher price as customers will go to the big firm.
Price Skimming
Method of pricing where the business sets a high price to a small niche
market. Sales will be low and price high. When saturation occurs the
business will reduce price to the bigger segment. Sales will be high and price
low.
Most examples of price skimming tend to be electronic goods. Some
consumers will pay a higher price to get the most technical and up to date
products first. Others will wait until the price falls.
Page 39
Price Penetration
Method of pricing where the business sets an initial low price to try to
encourage consumers to try the product. The price will eventually rise to a
competitive price.
This pricing strategy is used where there is brand loyalty in the market and
is used to persuade consumers to switch from a competitor. Often identified
as introductory price.
Psychological Pricing
Method of pricing which makes a customer think that the product or service
is a reasonable price e.g. $1.99 instead of $2
Elasticities of Demand
The change in a price of a product or service or the change in the income
levels of a person could influence how much a person buys.
1. Price Elastic Demand
When a change in price results in a more than proportional change in
demand then it is considered to be elastic demand.
If the price of beef goes down then people will start eating more beef
and less non-meat meals
2. Price Inelastic Demand
When a change in price results in a less than proportional change in
demand then it is considered to be elastic demand.
If the price of cigarettes goes up people will still buy cigarettes as they
are addictive. Likewise if the price of electricity goes up we may try and
use less but we will still use a lot.
Income elasticity works the same way but based not just on price but also on
income. Some goods we will continue to buy as we see them as essential such
as private education even if the price goes up. We will spend less on
something else rather than something we value. But if our income goes down
then we will spend less on what we consider to be luxury goods such as
holidays to the UK wed go to Mombasa instead.
Page 40
3.1.9 Distribution Channels
Place
A channel of distribution is the route taken by a product as it passes from
the producer to the consumer. This can be
Directly to the consumer
Through a retail outlet
Through a wholesaler
Using an agent
Directly to the consumer this can have problems in terms of the buyer
and seller identifying themselves to each other. However the Internet is
being used and also telesales can be effective.
Retail outlets have a major role as they have the ability to reach the huge
numbers of customers. Retailers are able to influence manufacturers to
produce products that their customers want. As such a customer orientated
markets exist. Quality also tends to be an issue in the distribution channel
as the retailers reputation is at stake.
Wholesalers act as links between producers and retailers. They buy large
quantities from the producers and then break them down into smaller
quantities suitable for the target market. E.g. 100 Kilo sacks of maize will be
bagged up into 1-kilo bags.
Agents negotiate the sale on behalf of a seller. Examples include ticket
agencies. The agency will take a commission and return unsold items to the
seller.
Internet selling or e-commerce. Online selling is an increasingly popular
method of distribution and allows small firms a low cost method of
marketing their products overseas. A business website can be both a method
of distribution and promotion.
Page 41
3.1.10 Promotion (advertising, sales, point of sale)
Promotion
Above the line: This is promotion that uses paid-for media to

advertise a product or service for sale.
1. TV expensive but wide coverage
2. Billboards effective but small coverage and can become ignored.
3. Newspaper and magazines able to target a specific target market
e.g. True Love, parenting, Business Africa
4. Radio cheap, speaks to the consumer.
Below the line: This is promotion that is not undertaken by paidfor media to advertise a product or service for sale.
1. Publicity: This is promotion via press releases to news media. Press
releases are issued in the expectation that they will be given editorial
mention at no charge.
2. Direct mail: This involves direct communication with customers, either in
the form of a letter addressed to the recipient (a mail shot) or
unaddressed (a mail drop.)
3. Packaging: This is a promotion by means of design and display. The
intention is to create an impact at the point of sale.
4. Sales Promotions: This covers a range of activities such as competitions,
gifts, point-of-sale displays, leaflets and sponsorship.
5. Personal Selling: A promotional presentation made on a person-to-person
basis. This is a two-way discussion between salesperson and buyer.
Page 42
3.1.11 Marketing strategy
3.1.12 Marketing budget

Businesses need to make strategic decisions on how much to spend on
marketing. Budgets can be based on
3. Percentage of past sales.
4. Same level as competitors

5. Objectives of the Firm
6. Availability of funds
Page 43
3.2
Production (Operations Management)
3.2.1 Using resources to produce goods and services
Production is the total amount made by a business in a given time period.

Productivity measures how much each employee makes over a period of time.
It is calculated by through output/input
Inputs include
2. Wages
3. Raw Materials
4. Overheads
Outputs include
2. Quantity Produced
3. Sales
To improve productivity a business must either reduce the cost of inputs or

increase the value of outputs.
3.2.2 Methods of production (job, batch, flow)
Job Production: The manufacture of single units usually to customer

requirements. Examples include hand made suits.
Batch Production: Groups of similar items are produced at the same time.
Flow Production: A product moves through a number of operations
continuously and in very large numbers.
Page 44
Job Production:
Batch
Production:
Advantages
High quality work
Highly motivated staff
Orders can be made to
customer specifications
Workers are able to specialise

and use specialist machinery
Costs per item made lower
Machinery can be adjusted for

different sizes, types etc.
Flow Production:
Large numbers of products can

roll off assembly lines.
All tasks are broken down and
so staff only have to carry out
simple tasks which reduces
wages and training.
Disadvantages
Expensive.
High waged labour
Tend to be labour
intensive (i.e. lots of
workers needed)
Goods have to be stored
and held in stock (such as
body panels for cars)
Specialist machinery may
have to be cleaned etc
when batch changed.
Factory needs to be laid
out in sections.
Workers tend to be
bored.
Large amount of capital
(money to buy equipment)
needed.
Once built it is difficult
to adjust.
Workers tend to be
bored.
Breakdowns affect other
stages.
Page 45
3.2.3 Scale of production
Economies of scale the reduction in costs per unit a business experiences

as a business grows
1. Technical Economies: Larger plants run more efficiently and running
costs do not rise in proportion with size. E.g. the cost of a double Decker
bus is not twice that of a single Decker as some of the parts, such as the
chassis and wheels do not need to be doubled
2. Managerial Economies: Larger firms can afford to employ specialists who
will be more efficient in their role.
3. Financial Economies: Large firms have a wider variety of sources of
finance (share capital), likewise they will have more assets to offer as
security and can also demand lower rates of interest.
4. Purchasing & Marketing Economies: Larger firms can get bulk buying
discounts, better trader credit terms (and so improved cash flow
position) and administration costs will also fall per unit. The cost of
marketing of products will also fall per unit as brand names are
advertised; sales forces sell more than one line etc.
5. Risk Bearing Economies: Larger firms are able to spread their risks
through diversification. They bring out more product lines and so the risk
of the whole firm failing is lessened, as all product lines are unlikely to be
unsuccessful.
Diseconomies of Scale -The rise in costs per unit which occurs as a firm
grows too large.
1. Communication Problems: The larger the firm the more difficult it is to
communicate within the firm.
2. Disharmony: Larger firms can suffer from poor relations between
management and the workforce and motivation tends to fall.
Page 46
3. Technical Diseconomies: If a break down occurs on a large plant then the

whole of output can be affected which would not
3.2.4 Lean production
Methods of implementing Lean production

Kaizen
o
Workers meet regularly to discuss production and to come with new

ideas on how to increase efficiency and productivity.
JIT is a form of Kaizen.
Rearranging the layout of the factory floor so that workers are not
wasting time through moving stock etc from one area to another.
Workers identify small improvements which are unlikely to cost a lot

to implement
New ideas come from the workers who will feel empowered and come
up with good ideas from research and development to after sales
service.
Cell production
Cell production has the flow production line split into a number of selfcontained units. Each team or cell is responsible for a significant part of
the finished article and, rather than each person only carrying out only one
very specific task, team members are skilled at a number of roles, so it
provides a means for job rotation.
Page 47
Increased technology
IT could be used for
Design work - CAD
Planning & budgeting - spreadsheets
Creating & using databases
E-mail communication
Stock control through EPOS (electronic point of sale i.e. bar codes)
EFTPOS (electronic funds transfer at point of sale)
Teleworking
JIT
JIT is a production method that involves reducing or virtually eliminating

the need to hold stocks of raw materials or unsold stocks of the
product. Supplies arrive just at the time they are needed.
Improves cash flow as money is not A lot of faith is placed in the
tied up in working capital
reliability and flexibility of suppliers
Reduces waste caused through stock Increased

becoming obsolete or damaged
ordering
and
administration costs
More factory space is available as Advantages of bulk buying reduced

stockholdings are reduced
Difficult
to
cope
with
sharp
increases in demand
Page 48
3.2.5 Costs and cost classification
Variable costs are costs that change directly in proportion with output.
Examples include raw materials and piece rate labour.
Fixed Costs are costs that, in the short run, do not vary with output.
Examples include rent, salaries, and insurance.
Direct Costs are costs which can be directly allocated to a specific area of
production. Examples include the wages of a Physics teacher can be allocated
to the science department.
Indirect Costs are costs that cannot be directly allocated to a specific area
of production and thereby must be shared out between all areas of
production. Examples include electricity which wages must be shared out as
an overall running cost as it cannot be allocated to a specific department.
3.2.6 Break-even analysis and simple cost based decision making
Break-even analysis is a technique widely used by production management

and management accountants. It is based on categorising production costs
between those which are "variable" (costs that change when the production
output changes) and those that are "fixed" (costs not directly related to the
volume of production).
Break Even occurs when Total Revenue = Total Costs
Page 49
Benefits of Break Even Point

1. The break-even point provides a focus for the business, but also helps
it work out whether the forecast sales will be enough to produce a
profit and whether further investment in the product is worthwhile.
2. The graph creates a visual representation which is good for
presentations as well as for non-numeric members of staff.
Limitations of break-even charts are:
1. Do not take into account possible changes in costs over the time
period.
2. Do not allow for changes in the selling price.
3. Analysis only as good as the quality of information.
4. Do not allow for changes in market conditions in the time period e.g.
entry of new competitor.
3.2.7 Quality control
Quality is meeting or exceeding customer expectations

Quality Control where finished products are checked by inspectors to see
if they meet the set standard.
Quality Assurance where quality is built into the production process. E.g. all
staff check all items at all stages of the production process for faults.
Everyone takes responsibility for delivering quality. Successful quality
assurance results in zero defect production
Quality assurance requires Total Quality Management (TQM), in which
managers try to bring about a change in business culture, convincing
employees to care about how products are being made and to do their part
to ensure standards are met.
Page 50
Main Principles of TQM

Prevention is better than cure. In the long run, it is
Prevention
cheaper to stop products defects than trying to find

them
The ultimate aim is no (zero) defects - or exceptionally
Zero defects
low defect levels if a product or service is complicated

things Better not to produce at all than produce something
Getting
right first time

Quality
defective
involves Quality is not just the concern of the production or
everyone
operations department - it involves everyone, including

marketing, finance and human resources
Continuous
Businesses should always be looking for ways to improve
improvement
processes to help quality
Employee
Those involved in production and operations have a vital
involvement
role to play in spotting improvement opportunities for

quality and in identifying quality problems
Page 51
3.2.8 Location decisions
Economics Factors Affecting Location

1. Availability of land.
2. Proximity to the customers.
3. Availability of labour.
4. Availability of raw material:
5. The availability of transport..
6. Nearby Parking!
7. Power supply
8. Government influence maybe the government will give subsidies to
encourage a business to locate in a area of high unemployment.
9. Legal Constraints.
10. Social Influences:
Factors Affecting international Location
1. Protectionism:
2. Legislation and bureaucracy: (laws and too much paper work from City
Council etc)
3. Political Stability:
4. The labour force:
5. Market opportunities and transport costs
6. Financial incentives:
7. Globalisation:
8. The Euro:
9. Language barriers:
10.
Manager preference
Page 52
3.3 Financial information and decision making
3.3.1 Cash and cash flow forecasts
Companies need to budget and be aware of cash flow in order to stay

solvent.
Solvency is the ability of a business to pay their debts as and when
they become due.
Cash flow is the movement of money in and out of the business.
Profit and cash flow are two very different things. Cash flow is simply about
money coming and going from the business. The challenge for managers is to
make sure there is always enough cash to pay expenses when they are due,
as running out of cash threatens the survival of the business.
Insolvency
If a business runs out of cash and cannot pay its suppliers or workers it is
insolvent. The owners must raise extra finance or cease trading. This is why
planning ahead and drawing up a cash flow forecast is so important, as it
identifies when the firm might need an overdraft.
Item
Jan
Feb
Opening bank balance
$2,000 $1,000
$1,250
Total receipts (money in)
$500
$5,000
$750
Total spending (money out) $1,500 $3,000

Closing bank balance
Mar
$2,000
$1,000 -$1,250 $1,750
If a business is unable to meet its short term debts it may go into liquidation
and so a business should ensure that timings of inflow and outflows an
carefully managed to avoid unauthorized overdrafts which may result in
bounced cheques.
Page 53
3.3.2 Profit (what it is and why it matters)
The main objective for many business is profit.
A Trading profit & Loss Account shows Gross Profit and Net profit
Gross Profit = Sales minus Cost of Goods Sold.
Cost of Goods Sold = Opening Stock plus Purchases minus Closing Stock
Net Profit = Gross profit Less Expenses
Profit after tax can be retained in the business for future projects or
distributed to shareholders. A sensible company will give the shareholders a
reasonable dividend to keep them happy and keep some profit back in the
business as Retained Profit.
3.3.3 Purpose and main elements of profit/loss account
Sales
10,000
Less Cost of Goods Sold

Opening Stock
1,000
+ Purchases
5,000
- Closing Stock
2,000
GROSS PROFIT
4,000
6,000
Less Overheads
Electricity
Bills
500
1000
1,500
NET PROFIT BEFORE TAX
4,500
TAXATION
2,000
NET PROFIT AFTER TAX
2,500
DIVIDENDS
1,500
RETAINED PROFIT
1,000
Page 54
3.3.4 Purpose and main elements of balance sheet
A Balance Sheet shows the assests and liabilities of a business
Assets are those items of value which are owned by a business.
Fixed Assets are items of value which a business buys to stay in a

business to help with production e.g. land, machinery, equipment,
vehicles.
Current Assets are items of value which a business buys to use up in
production e.g. stock, debtors, bank and cash.
Liabilities are amounts of money which a business owes.
Current Liabilities are amounts of money which a business owes and

must be paid back shortly e.g. creditors, bank overdraft.
Long Term Liabilities are amounts of money which a business pays
back over a long period of time e.g. bank loans, debentures.
Working Capital is the most important element of a balance sheet as it

shows the liquidity of a business.
Liquidity is the ability to turn an asset into cash with the least loss of
time, capital or interest.
If a business has liquidity problems it could find itself unable to meet debts
as and when they become due i.e. insolvent
Additionally a balance sheet shows what the business owns on a particular

day in time and how these assets have been financed e.g. through capital,
retained profit and borrowing. A bank will be worried about lending to a
business which already has a lot of borrowing.
Page 55
Net Assets Employed = Net Capital Employed
3.3.5 Simple interpretation of financial statements using ratios
Profitability Ratios
Ratio
Calculation
Comments
Gross Profit Margin
Gross Profit x 100

Sales
This ratio tells us something about

the business's ability consistently
to control its cost of goods sold or
ability to increase price.
Net Profit Margin
Net Profit x 100

Sales
Assuming a constant gross profit

margin, the net profit margin tells
us something about a company's
ability to control overheads.
Return on capital
employed ("ROCE")
Net Profit x 100

Net Assets
Employed
ROCE is sometimes referred to as

the "primary ratio"; it tells us
what returns management has
made on the resources made
available to them before making
any distribution of those returns.
Liquidity Ratios Liquidity ratios indicate how capable a business is of

meeting its short-term obligations as they fall due:
Ratio
Calculation
Comments
Current Ratio
Current Assets /
Current Liabilities
A simple measure that estimates

whether the business can pay
debts due within one year from
assets that it expects to turn into
cash within that year. Mostly 2:1
is acceptable but a ratio of less
than one is often a cause for
concern, particularly if it persists
for any length of time.
Page 56
3.3.6 Working capital
The net working capital of a business is

Current Assets minus Current Liabilities
Current Assets include:
Stocks
Trade debtors
Cash in hand or in the till
Bank Balance
Current Liabilities include:
Trade creditors
Taxation payable
Dividends payable
Every business needs adequate liquid resources in order to maintain day-today cash flow. It needs enough cash to pay wages and salaries as they fall
due and to pay creditors if it is to keep its workforce and ensure its
supplies.
Maintaining adequate working capital is not just important in the short-term.
Sufficient liquidity must be maintained in order to ensure the survival of the
business in the long-term as well.
3.3.7 Financial budgets
Budgets and Budgeting

Budgets are estimates of the income and expenditure of a business or
part of a business over a period of time.
A cash flow forecast is a type of budget which estimates the inflows and
outflows of a businesss money. Other budgets include setting an amount of
money which a department can spend over a period of time.
Page 57
Advantages of budgeting
1. Helps to make sure that all resources are used efficiently.
2. Helps to monitor cash flow.
3. Helps to create a focus and discipline for managers responsible for
money in the business.
4. Motivating for budget holders (Herzberg)
Types of Budget
1. Flexible Budgets budgets that change with the amount of output.
2. Objective Based Budgets based on the objectives of the business .e.g a marketing budget may be created to introduce new products in
order to increase market share.
3. Fixed Budget budgets set based on how much the business can
afford and allocated amongst departments.
3.3.8
Users of accounts
Internal Users
Owners
Employees
Managers
1. To identify whether they have made a profit.

2. To make a decision on what dividend to pay out.
1. To justify a pay rise or better working conditions. (If profit
has increased maybe it was because of their hard work.)
2. To check their job security.
1. For bonus related pay.
2. For self empowerment and to make them more marketable as
a manager.
Page 58
External Users
Tax
1. Tax is paid after profit
Authority
Registrar Of 1. All limited companies must submit accounts to a central
Companies
authority so that anyone can look at them. (Limited Liability)
(Companies
House)
Bankers
or 1. Banks will look at the firms working capital to see whether
lenders
they are solvent enough to repay existing debts or new
lending.
2. Banks will look at the Net Capital Employed to check whether
the business has borrowed too much. A business should not
borrow more than it has invested in itself as share capital or
owners capital. (If they do, then the lenders are taking more
risk that the owners!)
Suppliers
1. Suppliers will want to check that the business can pay them
back if they are offering trade credit.
Competitors 1. Competitors will check to see what new direction the business
might be going into or compare market share.
Future
1. Future investors will look at Gross and Net profit Margins,
Investors
ROCE and dividends to see if the business looks like a good
investment.
Page 59
Unit 4: People in Business

4.1.2 Methods of financial rewards
Payment methods
Managers can motivate staff by paying a fair wage. Payment methods
include:
1. Time rate: staff are paid for the number of hours worked.
2. Overtime: staff are paid extra for working beyond normal hours.
3. Piece rate: staff are paid for the number of items produced.
4. Commission: staff are paid for the number of items they sell.
5. Performance related pay: staff get a bonus for meeting a target set
by their manager.
6. Profit sharing: staff receive a part of any profits made by the
business.
7. Salary: staff are paid monthly no matter how many hours they work.
4.1.3 Non-financial rewards
Fringe benefits: are payments in kind, eg a company car or staff

discounts, cheap loans, free accommodation, time off, mobile phone.
4.1.4 Management styles and motivation methods
4. People in business
What is motivation?
Motivation is about the ways a business can encourage staff to give their
best. Motivated staff care about the success of the business and work
better.
Page 60
A motivated workforce results in:

1. Increased output caused by extra effort from workers.
2. Improved quality as staff take a greater pride in their work.
3. A higher level of staff retention. Workers are keen to stay with the
firm and also reluctant to take unnecessary days off work.
4.1 Human needs and rewards
Maslow
1. Physiological / Basic needs: Basic acceptable salary for the job, good
working conditions.
2. Safety / Security Needs: Feeling safe in eth work place and feeling
secure in the job that you will not be fired or made redundant and
that you have a permanent job.
3. Love & Belonging: Feeling happy with the people you work with.
4. Self Esteem: Feeling a sense of achievement, being recognised for
the good job you do, being promoted.
5. Self-Actualisation: Feeling in control and be able to make decisions.
Being allowed to be creative and do things your way.
Page 61
Herzberg
1. Motivators:
Factors that give job satisfaction.
2. Hygiene Factors: Factors that can add to workers being dissatisfied.

Herzberg tends to agree with Maslow in many areas except that only the
higher levels of Maslows hierarchy motivate workers. Herzbergs ideas are
often linked to job enrichment where workers have their jobs expanded so
that they can experience more of the production process.
Motivators Factors which

Motivate
Sense of achievement
Chance of promotion
Chance of improvement
Recognition of effort
Responsibility
Nature of the job itself
Work
Hygiene
Factors which
need to be met
to stop
dissatisfaction
Pay
Conditions
Company Policy
Treatment by management
Inability to develop
feelings of inadequacy
Hertzberg believed in job enlargement, job enrichment and job roation

to motivate workers.
1. Job Enlargement: Involves giving an employee more work to do of a
similar nature. For example a person would be responsible for making
the whole of a product instead of just part. Hence the job is expands
horizontally.
2. Job Rotation: Involves an employee changing jobs or tasks from time
to time. Employees are frequently organised into groups / teams/ cells
and are trained with skills to perform each others jobs and as such
Page 62
are able to rotate periodically. This is helpful to the employers as the

workforce becomes increasingly multi-skilled.
3. Teamwork: Involves teams deciding for themselves how work should
be distributed and how to solve problems as they arise.
4. Job Enrichment: Involves extending the job vertically to include more
of the decision-making tasks. For example an employee may be given
responsibility to plan a task, carry out quality control, supervise the
task, order materials and maintenance. Unused skills are thereby
developed
Type of Leadership
Type of
Method
Leadership
Autocratic
Leader makes decisions alone. Others are informed and
carry out decisions.
One-way communication.
Demotivating.
Democratic
Leader encourages others to participate in decisionmaking. Can persuasive (where leader has already made a
decision and persuades others to agree) or consultative
(where leader consults others before making a decision).
Time consuming
Begs the question of whether staff should always be
involved in all decisions.
Laissez
Leader delegates nearly all authority and decision making
Faire
power.
Empowering.
Tends to be a lack of structure and feedback.
Page 63
Recruitment and Selection

Organisations draw up workforce plans to identify their future staffing
requirements. For example, they may develop plans to recruit a new IT
Manager when the current one plans to retire in eight months time.
If a business does not have enough staff trained in the right areas then
production might be of a poor quality, customer service might be poor and
sales will be low. If a business has too many staff then they will have lower
profits.
Firms can recruit from inside or outside the organisation.

Internal recruitment involves appointing existing staff. A known person is
recruited.
Advantages
Employee already knows procedures,
staff and how things work.
Is a motivator as staff can be
promoted up the ladder.
Disadvantages
Existing staff do not bring new ideas
into the firm.
Staff have to be recruited to
replace the promoted member of
staff
External recruitment involves hiring staff from outside the organisation.

Advantages
Disadvantages
Brings new ideas and new skills into Might be a poor recruitment just
the firm
because someone performs well in an
interview they might not be very
good at their job or maybe they dont
fit in with other staff.
Avoids existing staff getting upset Can be expensive and time consuming.
at a colleague getting a job they
wanted.
Page 64
The Recruitment Process

A. Identify a position
B. Produce a job description and person specification
C. Advertise position
D. Receive application forms, curriculum vitae & letters of application
E. Short list applicants
F. Check references
G. Interview candidates & carry out aptitude & psychometric tests (if
necessary)
H. If appropriate candidate identified offer position.
I. If no applicant if appropriate re-advertise position.
Job Description and Person Specification
Job descriptions explain the work to be done and typically set out the job title,
location of work and main tasks of the employee.
A job description makes sure a candidate understands exactly what is
required.
Person specifications list individual qualities of the person required, eg
qualifications, experience and skills.
A person specifications avoids unqualified candidates or wrong types of
people from applying for a job.
Page 65
Importance of Good Recruitment & Selection

1. Creates a more efficient workforce in terms of speed, wastage, customer
service and labour productivity.
2. Creates a more stable workforce in terms of staff turnover.
3. Reduces the cost of recruitment if less staff are leaving.
4. Reduces staff absenteeism, as well-recruited staff are less likely to take
time off work.
5. Staff who do not fit in well can lead to low moral and low motivation in
the workplace which in turn reduces productivity and increases staff
turnover.
Where to advertise a job vacancy
1. Internally on notice boards or through email.
2. Word of mouth cheap but not many people will hear.
3. Notice boards in shops, malls etc cheap but does not target specific
skills. Suitable for sales people and jobs with high turnovers.
4. Newspapers can be put into specific newspapers e.g. a trade magazine
for IT people, or at times of the week which advertise specific types of
jobs, e.g. Marketing jobs might be advertised on a Thursday in the
Nation etc.
5. Internet wide target market.
6. Job Centre some countries have government run centers to help people
looking for job here about jobs available across the country.
Page 66
7. Recruitment Agency companies which are specialists in recruitment.

Saves the business time and they benefit from the better skills in
recruitment offered by the agency. Can be expensive for top jobs.
Where to advertise depends on
Turnover of staff (very high)
Level of skills needed.
Money available to advertise.
Whether internal or external.

4.2.2
Training methods
It is a legal requirement that all staff are trained to an appropriate level to

be able to do their job.
1. Induction Training enables a new recruit to become productive as

quickly as possible. It can avoid costly mistakes by recruits not
knowing the procedures or techniques of their new jobs. The
length of induction training will vary from job to job and will
depend on the complexity of the job, the size of the business
and the level or position of the job within the business.
The following areas may be included in induction training:
Learning about the duties of the job

Meeting new colleagues
Seeing the layout the premises
Learning the values and aims of the business
Learning about the internal workings and policies of the business
Page 67
2. Multi-skilling the process of training employees to do a number of

different tasks. This allows for more flexibility at the workplace. Multiskilling is considered a motivator and increases productivity, as
production does not stop due to absenteeism. (Herzberg)
3. Upgrading Skills Particularly useful for upgrading workers ICT skills.
This is a form of job enrichment. (Maslow Self Esteem)
Training Can be Internal, External, On the Job or Off the Job
Internal where the company trains staff within the business
External where staff are sent on courses run by specialists to
On-the-job training
On the job training occurs when workers pick up skills whilst working along
side experienced workers at their place of work. For example this could be
the actual assembly line or offices where the employee works. New workers
may simply shadow or observe fellow employees to begin with and are
often given instruction manuals or interactive training programmes to work
through.
Off-the-job training
This occurs when workers are taken away from their place of work to be
trained. This may take place at training agency or local college, although
many larger firms also have their own training centres. Training can take the
form of lectures or self-study and can be used to develop more general skills
and knowledge that can be used in a variety of situations, e.g. management
skills programme
On-the-Job Training
Off-the-Job Training
Cheaper to carry out
Learn from specialists in that area of

work who can provide more in-depth
study
Training is very relevant and practical

Can more easily deal with groups of
dealing with day to day requirements
workers at the same time
of job
Page 68
Employees respond better when taken

Workers not taken away from jobs so
away from pressures of working
can still be productive
environment
Employees who are new to a job role Workers may be able to obtain
become productive as quickly as
qualifications or certificates
possible
Retaining workers is important to a firm because it costs time and money to

hire and train a replacement. Appraisal and training helps motivate staff
and so improves staff retention.
4.2.3
Dismissal and redundancy
Redundancy
Redundancy is when a business can no longer employ you because your job no
longer exists this might be through
Falling sales means that a business needs fewer staff and some posts
are no longer required.
Low revenues may lead a company to try to cut staffing costs.
Changes in production methods such as increased machinery or worker

need to have more technical skills which exisiting staff do not have.
Redundancy procedures must be fair, for example firms can use a last-infirst-out method to shed staff.
Redundant workers receive compensation according to the number of years
with the firm.
Page 69
Dismissal
Dismissal is when a worked
unsatisfactory work or action.
is
asked
to
leave
firm
due
to
A worker will normally be given a number of chances to improve his/her work

which may be unsatisfactory due to poor punctuality, absenteeism, poor
quality of work etc. The worker will be given a verbal warning and a chance to
improve (maybe extra training), a written warning if the situation does not
improve and then s/he would be dismissed (sacked) if still no improvement.
Instant Dismissal instant dismissal (i.e. without any warnings) can occur if
the worker does something very bad known as gross misconduct. This would
include theft, sexist, racist behaviour, ringing up sick when they are actually
well.
Page 70
Unit 5: Regulating and Controlling Business Activity

5.1 Reasons for regulations
5.1.1 Impact of business decisions on people, the economy and the environment
Sometimes the government will intervene in a mixed economy when it thinks

that some its social and economics objectives cannot be met by the private
sector (revise private sector, public sector and objectives of businesses and
the government)
Market Failure
When the government gets involved this is often due to market failure
where the private sector either will not provide a good or service or will only
do so at a very high price or when the actions of the private sector is not
considering the social and environmental needs of the country.
Examples of Market Failure
Public Goods not provided by the free market because of their two main
characteristics
Non-excludability where it is not possible to provide a good or service

to one person without it thereby being available for others to enjoy
Non-rivalry where the consumption of a good or service by one person

will not prevent others from enjoying it
Examples: Street lighting / Lighthouse Protection, Police services, Air

defence systems, Roads / motorways, Terrestrial television, Flood defence
systems, Public parks & beaches
Because of their nature the private sector is unlikely to be willing and able
to provide public goods. The government therefore provides them for
collective consumption and finances them through general taxation.
Page 71
Merit Goods
Merit Goods are those goods and services that the government feels that
people left to themselves will under-consume and which therefore ought to
be subsidised or provided free at the point of use.
Both the public and private sector of the economy can provide merit goods &
services. Consumption of merit goods is thought to generate positive
externality effects where the social benefit from consumption exceeds the
private benefit.
Examples: Health services, Education, Work Training, Public Libraries,
Citizen's Advice, Inoculations
Monopoly a monopoly exists when a business controls at least 25% of the
market and competitors are all very small. A monopoly can charge a high
price, provide poor quality and little choice. A government will avoid this by
setting laws limiting the size of a large business.
How Governments will intervene (get involved)

Government intervention may seek to correct for the distortions created by
market failure and to improve the efficiency in the way that markets
operate
Pollution taxes to correct for externalities
Taxation of monopoly profits (the Windfall Tax)
Direct provision of public goods (defence)
Policies to introduce competition into markets (de-regulation)
Price controls for the recently privatised utilities
Legislation
Page 72
The main areas of legislation that affect businesses are:
Employment law
Consumer protection
Competition law
Most countries in a mixed economy have the following laws which the
government use to intervene to avoid the public or employers being exploited
by businesses. You do not need to know specific laws but read through the
following list to get an idea of how legislation helps employees, customers
and the local environment avoid employment laws that a business needs to
consider are:
Costs and Benefits of Business Legislation
Costs
Benefits
Health and Safety at Work Act

Increased costs to maintain site, pay Less accidents, sickness and happier
for hard hats, check equipment, staff as hygiene factors are met
training
(Herzberg)
Sex Discrimination Act, Disability Discrimination and Race Relations Act
An employer cannot employ who s/he Happier staff knowing they can be
wants
rewarded for their hard work and
the best person for the job is
appointed.
Consumer Protection Act and Trade Descriptions Act
A business must pay for quality Consumers are more satisfied as
checks
quality improved.
Competition law
Businesses may not be able to merge Consumers interests are protected
or take over other businesses to against being exploited through
benefit from economies of scale and high prices and low quality
growth benefits
Page 73
Planning Permission
Business could find themselves going Local
environment
and
local
through lots of paperwork to expand community rights protected against
or develop a business
businesses opening up on Greenfield
sites or polluting businesses opening
up nearby
Trade Unions and Pressure groups will generally ensure that workers, social
and environmental rights are represented and upheld.
Costs and Benefits of Government Intervention

Costs
Benefits
If the government supports one

business then other businesses have
a less advantage and may fail as they
are not getting the benefit of
government help.
If a business is going to go bust

there would be lots of unemployment.
If the Government takes over the
business jobs will be saved
Government intervention might stop

a
business
being
competitive
internationally (e.g. too many laws
make business costs go up.)
If government support industry

through
creating
training
programmes then businesses have
better trained staff.
Government incentives encourages

inefficiencies as companies can
become lazy and not compete with
quality etc.
Government incentives encourage

businesses to set up which creates
jobs and improves standards of
living.
Page 74
5.2 Influences on business activity

5.2.1 Location decisions
Incentives: Various organisations offer incentives. E.g. EU, National & Local
Government etc. Incentives include low rental sites, purpose built factories,
re-settlement of key workers, tax allowances, advice & consultancy etc.
Constraints: Planning permission often stops some building in certain areas
(e.g. Uhuru Park) etc.
Social Influences: Pressure groups occasionally get involved in stopping
industry from moving to a particular area
5.2.2 Workforce and the working environment (health and safety, employment protection)
Trade Unions
Trade Unions are organisations representing workers who join together to
further their own interests.
Reasons to Join a Trade Union

1. Collective bargaining for pay rises
2. To protect and enforce workers legal rights.
3. Improved working conditions
4. To protect against unfair dismissal
5. To offer legal advice in employment areas.
6. To offer negotiated discounts to members by being part of a large
organisation.
Page 75
Labour / Management Relations

The owners of a business and the employees are stakeholders that
occasionally have conflicting objectives. The owners want the highest
possible profit and the employees want the highest possible pay and the best
possible working conditions.
Types of Industrial Action
Go slow where workers simply slow down
Work to rule where workers will read rule books before working and
not do anything that is not in their job description.
Picketing where workers stand outside a business to tell everyone how

poor working conditions are at the business to encourage local people to
support them and pressure groups.
Strike where workers refuse to go to work. This harms the workers

and the business as production stops and workers do not get paid. Can
force a business to agree to workers demands but in some countries
where trade unions are not as strong the
Protection for Staff
Employment rights
Staff are protected against age, sex, race or disability discrimination
To prevent exploitation, many governments pass laws that safeguard staff:
Workers are guaranteed a minimum hourly wage rate

Race, sex, age or disability discrimination is illegal.
Maternity and paternity leave
Page 76
Protecting workers rights increases the costs of firms.
Health and safety
Health and safety procedures are put in place to prevent staff from being
harmed or becoming ill due to work.
The Health and Safety at Work Act is a primary piece of legislation
covering occupational health and safety in many countries.
Examples of when health and safety procedures need to be in place
Using dangerous equipment at work
Food processing
Hotels (guest safety)
Chemical production (dangerous processes, waste disposal)
Air travel (passenger safety)
Schools (student and staff safety)
Health and safety procedures are enforced by the government.

Costs and Benefits of Business Adhering to Employment Legislation
Costs
Benefits
Cost of implementing the laws Less accidents and less illness due to
making sure fire alarms are poor working conditions
appropriate,
fire
drills,
safe
equipment, hard hats etc.
Costs of someone monitoring the Workers are happier as they have
safety of workers and visitors
better working conditions (Maslow
basic needs)
Page 77
Discrimination
Discrimination in the workplace means treating one person unfairly in
recruitment, promotion, job assignment or termination (dismissal or
redundancy) due to their race, sex (including pregnancy and maternity),
martial status, disability or religious belief
Employees are usually protected under law for most of the above. These laws
vary from country to country e.g. maternity leave in some countries differ,
and not all country have strong enough representation through trade unions
or lawyers or through local governance to properly protect the workers and
stand up for their right.
Examples of Discrimination
Employing a man rather than a woman even though the woman can equally
do the job.
Sacking a woman when she gets pregnant.
Refusing to employ someone from a specific religious background or race.
Paying a man more than a woman for doing the same job.
Page 78
5.2.4 External costs and benefits
Businesses affect the local environment - both natural and social.

Ethical businesses try to keep the impact of their operations on the
environment to a minimum.
Social costs and the environment
Business activity has an impact on the natural environment:
Resources such as timber, oil and metals are used to manufacture goods.
Manufacturing can have unintended spill over effects on others in the form
of noise and pollution.
Land is lost to future generations when new houses or roads are built on
Greenfield sites.
The production process can often create air pollution
The unintended negative effects of business activity on people and places
are called social costs and include:
noise
pollution
visual blight
congestion
Ethical businesses are careful to minimise the impact of their behaviour on
the environment.
Government laws are used to protect the environment. For example, firms
must apply for planning permission before building factories or offices on
Greenfield sites. Grants are available to encourage firms to locate on
Brownfield sites, run down areas in need of regeneration.
Page 79
Social benefits
Social benefits are business activities that have a beneficial or favourable

impact on people or places. For example, a business start up can have a
multiplier effect. Suppliers will win new trade from them and the new
workforce will become customers in the local shops.
A proposed project often generates both costs and benefits. For example,
building a new factory on a greenfield site creates social benefits in the
form of new jobs. However, the loss of open land is a social cost. Building is
justified only if the benefits exceed the costs.
Short- and long-term environmental effects

Some business activity can cause short-term environmental costs which can
be put right in the longer term. For example, the impact of cutting down
forests for timber is much reduced if young trees are planted in their place
and left to grow into maturity.
5.2.6 Business cycle
The business cycle consists of a sequence in which a recession is followed by

recovery, which leads into a boom. After a period of boom conditions there
will be a downturn leading to recession. This is usually characterised as a
period of slower growth or stagnation. It can be followed immediately by a
period of recovery. Or persist to the point where incomes and output are
actually falling, in which case there is a depression or a slump.
Recession
In a recession, you will probably observe the following:
Businesses complaining of falling demand

Cuts in output.
Rising unemployment
Gloomy expectations
Falling levels of investment
Many businesses making losses
Page 80
Some businesses closing down.
Recovery
When it comes recovery is rather halting.
Businesses are unsure that the improvement in demand will be

sustained.
Expectations remain depressed.
Investment will still be considered to be risky.
Reluctance to take on new labour.
Unemployment is likely to stay high.
Boom
As recovery turns into boom the following features emerge:
As investment increases, equipment suppliers have difficulty in

meeting demand.
Most businesses work flat out.
Many businesses experience a shortage of experienced staff.
Wages increase as businesses bid against each other. This leads to
inflation.
Prices increase
Page 81

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Key Revision Booklet

Includes key definitions plus key

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

Goods And Services

Capital Goods. These are goods purchased by businesses to produce the

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

The Private Sector

The Public Sector

Some services are provided by both the

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

The Voluntary Sector

This is also known as the not for profit sector, Non-Governmental

Funding of the sectors of production

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

1.1.3 Business growth and measurement of size

Growth and Measurement of Size

Sales turnover (or sales revenue)

Businesses either grow organically or externally (by acquisition and mergers.)

A business can grow organically in the following ways:

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

Mergers and Acquisitions

The disadvantages of mergers and acquisitions are:

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

Constraints on Growth (Things stopping growth)

Financial limitations a business may not be able to raise the

Size of the market there is often a limit to number of people who

Government controls means that a business cannot necessarily have

Human resources are limited in terms of the skills available. Especially

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

1.1.4 Key features of own national economy

Kenya Key Economic Facts

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

1.2.1 Business objectives and their importance

Objectives: A specific statement that should be quantifiable.

Specific with regarded to exactly what is needed

Level of importance / Conflicts

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

1.2.2 Stakeholders and their differing objectives

Definition: A stakeholder is an individual that has an interest in

To receive high profits / dividends

Self satisfaction being your own boss

Their jobs and any bonus related pay

To get the best possible wage / salary possible

(Also Trade Unions)

To have job security

To be paid on time and so be able to meet their

To be able to buy the products or services

Source: Mrs ODolans Notes, Tutor2U & BBC BiteSize

1.2.3 Aims of private and public sector enterprises

Comparison Of Public Sector and Private Sector Objectives

The Objectives of the Private

2. Low inflation rates

2. Growth and increased market

3. Low levels of unemployment

4. Exchange rate stability

Differing Objectives of State and Private Sector Organisations

The Objectives of the Public

More people with money to spend on