Business Section 1 - Starting a Business

  • Created by: ryyansb
  • Created on: 22-03-15 12:12

Why Businesses exist

People set up businesses for different reasons:

  • Financial reasons - e.g. making a fortune on firms profits
  • Personal reasons - e.g. independence of being own boss
  • Help others - e.g. start a charity

Businesses can have different aims - Most businesses have 1 main aim - make a profit in order to survive. If the business doesn't make a profit it will likely go bust

Businesses have other aims too:

  • Some will try to be the biggest in their market
  • Other might try to  provide the best quality of service possible
  • Some might focus on expanding the business
  • Satisfying customers or trying to limit environmental damage
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Entrepreneurs take advantage of business opportunities

  • Enterprise involves identifying new business opportunities and then taking advantage of them. Always a risk of failure.
  • Enterprise can involve starting up a new business or helping an existing one expand
  • A good business idea is usually a product/service that no other business is already providing i.e. a gap in the market
  • market niche is a small part of the overall market and made up of customers with a particular need

Enterprise means taking risks

  • An entrepreneur needs to gather together all the resources needed to start or expand a business. The key resource is money.
  • Very often entrepreneurs use their own money but maybe banks or investors as well
  • They will hope the business will make enough profit to pay back any money borrowed 
  • Good entrepreneurs will take calculated risks, do research, plan the business carefully and weigh up consequences of failure
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A successful entrepreneur is likely to have the following qualities 

  • ability to think ahead - identify opportunities for the future
  • initiative - seek out or seize business opportunities
  • drive and determination - turn ideas into practice 
  • decisiveness - don't shy away from making tough decisions 
  • networking skills - identifying people who can provide money 
  • leadership skills and powers of persuasion - motivate others
  • willingness to take calculated risks - profit from enterprise activities 
  • ability to plan carefully - minimise risk of failure
  • ability to learn from mistakes - see mistakes as learning to succeed
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Sole Traders

Sole Traders - easiest business to start 

Most small businesses are sole traders


  • Easy to set up
  • Get to be your own boss
  • You alone decide what happens to profit


  • Have to work long hours - not many holidays either
  • Unlimited liabilty
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Equal say in the business and profits - deed of partnership 


  • More ideas and more people to share work
  • More capital canbe put in


  • Responsible for other partners
  • Unlimited liability
  • More disagreements
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Private Limited Companies (Ltd)

  • Limtied Liabilty
  • Memorandum of association - who the business is and where it is
  • Article of association - how the business will be run
  • Owned by shareholders

Advantage - limited liability


  • More expensive to set up
  • Legally obliged to publish accounts every year
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A franchise is the right to sell another firms products


  • Buying rights to sell an established product - less risk of it failing
  • Benefit from wider marketing
  • Franchisor would provide training


  • Only be able to sell the franchisors products
  • Have to run the business to the franchisors riles

Advantages for franchisor - increase market share without increasing size of their own firm - very profitable way to expand

Disadvantages to franchisor - if franchisee is poor it could affect the brand

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Aims, objectives and business objectives

Success for a business can mean different things:

  • Survival - over two thirds of businesses close within five years
  • Profit - may take a few years
  • Growth - increasing number of employees, products sold and income
  • Market share - increase market share
  • Environmental sustainability - minimising impact of firms activities on environment
  • Ethical considerations - acting in a way society believes is right 
  • Customer satisfaction - how happy consumers are

Objectives help businesses achieve their aims - objectives are more specific than aims - they are measurable steps on the way to the aim. For example if a firms aim is to grow then there objective could be to increase sales by 30%

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Influence of stakeholders

Internal - inside the firm such as owners and employees

External - Outside the firm such as customers, suppliers, government and the local community

All types of stakeholders:

  • Employees are interested in job security and promotional prospects
  • Suppliers are interested in the firm doing well so they purchase more supplies
  • Local community are interested in jobs and sponsorship but could suffer from noise and pollution
  • Customers want high quality products at low prices
  • Government are interested in the firm making a profit
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Business Plan

Outline of what a new business will do and how it aims to do it

Includes at least 7 sections:

  • 1. Personal details of the owner and important personnel - like their CVs
  • 2. Mission statement - a way of describing the broad aims of the company
  • 3. Objectives - more specific than aims
  • 4. Product description - including details of the market and competitors. Should explain how the firm will achieve product differentiation (also called USP - unique selling point). Marketing  strategies - 4Ps.
  • 5. Production details - how the firm will make the products - include equipment and location
  • 6. Staffing requirements - how many staff, job descriptions, wage bill
  • 7. Finance - explain how much money is needed to start the business, cashflow forecasts, profit and loss accounts and balance sheet
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Location of production

Location is influenced by the following factors:

  • 1. Location of raw materials - located nearby to lower transport costs
  • 2. Labour supply - area of high unemployment will lower wages
  • 3. Transport - sea, road, rail
  • 4. Economies of concentration - similar businesses nearby so easier to find skilled labour - already local suppliers 
  • 5. Communication links - good telephone, post, internet
  • 6. Location of the market - where customers can easily get to them
  • 7. Government policy - pay big multinational companies to locate in their country
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