AQA Business Studies for AS : Revision Guide

127 Pages·2010·1.87 MB·English

by  Ian Marcouse

AQA BUSINESS
STUDIES for AS
REVISION GUIDE
SECOND EDITION

Ian Marcousé
Marie Brewer
Andrew Hammond
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British Library Cataloguing in Publication Data
A catalogue record for this title is available from the British Library
ISBN: 978 1 444 10796 8
First Edition Published 2005
This Edition Published 2010
Impression number 10 9 8 7 6 5 4 3 2 1
Year 2014 2013 2012 2011 2010
Copyright © 2010 Marie Brewer, Andrew Hammond, Ian Marcousé
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Contents
Starting a business 26 Motivation in practice 56
1 Enterprise and entrepreneurs 2 27 Integrated people 58
2 Identifying business opportunities 4
3 Protecting business ideas 6 Operations management
4 Developing business plans 8 28 Customer service 60
5 Choosing the right legal structure 10 29 Effective quality management 62
30 Working with suppliers 64
Getting the start-up right
31 Capacity utilisation 66
6 Market research 12 32 Making operational decisions 68
7 Understanding markets 14 33 Using technology in operations 70
8 Sources of fi nance 16 34 Integrated operations management 72
9 Location factors for business start-ups 18
10 Employing people 20 Marketing and the competitive
environment
Financial planning
35 An introduction to effective
11 Calculating revenue, costs and profi t 22 marketing 74
12 Break-even analysis 24 36 Niche versus mass marketing 76
13 Cash fl ow management and 37 Designing an effective marketing mix 78
forecasting 26 38 Product and product differentiation 80
14 Setting budgets 29 39 Product life cycle and portfolio
15 Assessing business start-ups 31 analysis 82
40 Promotion 84
Finance 41 Pricing 86
42 Price elasticity of demand 88
16 Using budgets 33

43 Place 90
17 Improving cash fl ow 35
44 Marketing and competitiveness 92
18 Measuring and increasing profi t 37
19 Cash fl ow versus profi t 39
Exam success
20 Integrated fi nance 41
45 A grade business concepts for
People in business AS level 94
46 Tackling the BUSS1 exam 96
21 Productivity and performance 44
47 Tackling the BUSS2 exam 99
22 Organisational structure 46
23 Measuring the effectiveness of the Answers 101
workforce 48 Revision checklists 115
24 Recruitment and training 50 Index 117
25 Motivation in theory 53
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Introduction
This revision book is written to help push every ● Go through the Specifi cation content, word by
reader’s AS results up by at least one grade. It does this word, using the A-Z Business Studies Handbook,
by focusing the AS subject content on the exam skills Philip Allan 2009 as your companion. This book
sought by examiners. The writing style is analytic, will be invaluable for your A2 studies and is widely
but applied to the context of real businesses, just as used by 1st year university students – so your
the examiners want. Every chapter points out key money will not be wasted
evaluative themes within the syllabus. As knowledge ● Regularly read articles from Business Review
of the syllabus counts for only one-third of the marks magazine. It will be available in your school/
at AS level, revision must do more than re-hash facts college library. Look out especially for articles by
and defi nitions. This Revision Guide teaches the reader Andrew Gillespie, Ian Marcousé, Malcolm Surridge
to develop all the exam skills needed for success. and John Wolinski.
Each unit within the book covers a different
section of the AS specifi cation. All the key concepts
are explained, with the more diffi cult ones getting The authors
longer, fuller explanations. The content is full of
Ian Marcousé has devised the format of the book
references to real fi rms and application is further
and edited all the text and questions. Ian is the Chair
enhanced by dedicated sections in each unit. There
of Examiners for a major exam board and a leading
are also questions to test yourself in every unit. The
author. He is also the founding editor of Business
answers are set out at the back of the book to provide
Review magazine.
immediate feedback on how your revision is going.
Marie Brewer is an experienced author and a
Also remember the Revision Checklists at the back
Senior Examiner for a major exam board.
of the book, which are written to help you revise
Andrew Hammond is an experienced author, a
thoughtfully.
regular contributor to Business Review and a Senior
In addition to this book, it is hugely helpful to:
● Use the actual and ‘specimen’ exam papers Examiner for a major exam board. He is also Head
of Business Studies at Darrick Wood School, Bromley.
available at www.aqa.com
2
1 Starting a business
Unit 1 Enterprise and entrepreneurs
entrepreneurs need to be:
What?
● Willing to take a risk – a new business venture
almost always carries a risk. There are very few
Enterprise is the collection of skills that make a
certainties when starting a new business. Even a
business idea happen. It is also used as an alternative
perfect idea may hit snags such as the onset of
word for a business. Entrepreneurs are the people
recession or a change in taste or a rival getting to
who turn business ideas into reality.
the market sooner. If the idea fails it will result in a
At each stage of the process value is added. The price
loss of capital, the time invested will be wasted and
of the basic ingredients often bears little resemblance
there may well be a loss of reputation.
to the fi nal price to the consumer. The beans in the ● Determined – most new businesses will face
e
d £2 cup of coffee would have been bought for less problems. A strong determination to ‘make it
ui than 1p. This process of adding value is what makes
G happen’ will be invaluable. Having a passion for the
n enterprise worthwhile. The added value contributes product will make them push through diffi culties.
sio to the profi t that the enterprise makes. ● Have persuasive abilities – most business ideas
vi The economy is described as having different need some form of external support. Being able to
e
R sectors. These are: convince others to lend money or to support your

S ● Primary – growing, fi shing, mining and extracting
A venture can be vital.
r raw materials. In many developing countries this ● Good at building relationships – most businesses
o
f sector accounts for most of the economic activity. need to be involved with other organisations or
s
e In the UK it is less than 2 per cent. people. Suppliers, workers, customers all need to
di ● Secondary – this is basically manufacturing but
u be dealt with and if relationships are good it can
St includes engineering and construction. It is the help to solve problems if they occur.

s sector that turns raw materials into fi nished,
s
e packaged goods. Traditionally it is the sector where However
n
si the most value is added.
u
B ● Tertiary – this is the service sector. It includes
If a business is to succeed the personal qualities of the
A
Q selling, both wholesalers and retailers, a s well as entrepreneur may not be enough.
A fi nancial services, media, and the countless other ● Market research is vital – the entrepreneur needs
business services. This is the largest sector in the
to know if the product or service will sell and if
UK economy.
there is competition from alternative products or
Some businesses may be in more than one sector. A
businesses.
farmer selling farm produce has grown the vegetables ● It also needs good business planning – the best idea
(primary) and then sells to the public (tertiary). If he
in the world may fail if there is insuffi cient fi nance
also makes and sells yoghurt then he is also in the
available. If the marketing is insuffi cient, customers
secondary sector. Other businesses may be in just
may be unaware of the product or service.
one. Most of the new business start-ups in the UK are ● Timing is also important – starting a business during
in the tertiary sector. This may be because it is easier
an economic downturn is clearly going to be more
to start a sole trader business providing services than
diffi cult than during a boom time.
to start a manufacturing process that requires space,
machinery and people. Why?
Who? There are many reasons why new businesses are
started. Those started by the over-fi fties could well
Entrepreneurs come in many shapes and forms. They be as a result of redundancy. The prospect of getting
are not all whizz-kids or big names such as Richard a new job is greatly reduced so people look to going
Branson. Many successful businesses are started by it alone. Others may be the result of a change of
people who never hit the headlines. One in six new direction – doing something you have always wanted
businesses are started by people over fi fty. to do. For some people a business grows from an
In order to make a business idea succeed idea. Maybe they spot a gap in a market. Several have
been started by mums who found it diffi cult to get 3
start-up. Maybe fashion will change. An economic
something for their children, so set up a business to
downturn would change the business environment
supply to others.
and so make it harder to succeed.
Profi t?
Managing risk
It is a common assumption that entrepreneurs are
The secret is to try to minimise the amount of risk.
‘in it for the money’. Of course making money is
It is often said that entrepreneurs take a ‘calculated
important but it is rarely the prime motivation for a
risk’. This means that they know the level of risk and
business venture. Many people just want to be their
have decided that they can live with this and so are
own boss. Others have a passion for a particular idea.
prepared to have a go. Business Angels, who provide
That does not mean that profi t is not important.
funding to new and growing businesses, know that
Even the most passionate entrepreneur cannot keep
not every business will succeed. They hope to make
supporting a business idea that is constantly making
enough return from the successes to cover the loss
a loss. Profi t gives a return for the time, effort and
from the failures. They are balancing the risk.
fi nance invested in the business. Without some return
Calculating the level of risk requires good research.
external funding will be impossible. If the business is
This will give a good understanding of the market
to grow it will also need profi t so that there is money
and can help to identify things that could go wrong.
to reinvest in the business.
It may then be possible to take steps to minimise the
Profi t is the reward for the risk that the entrepreneur
problems and so effectively reduce the degree of risk.
takes when starting up a new business.
Opportunity cost Themes for evaluation
The image of entrepreneurs is dominated by people
When someone starts a business they have to give up
doing something else. The money they invest cannot such as Peter Jones, Theo Paphitis and Richard E
n
be used to buy a new car. Their time cannot be spent Branson. However, the majority of new business start- te
ups are done quietly by very ordinary people who r
doing other things. This concept – the cost of what is p
have a good idea or see a gap in the market and have r
being given up in order to do something – is known is
the determination to make it work. It is also worth e
asopportunity cost.
a
As resources are limited choices have to be made. remembering that not all businesses succeed. The n
d
When a person sets up a new business one of the reasons for a business success can be very varied e
– a good idea, hard work, good planning or maybe n
opportunity costs to them may be the loss of their t
salary in the previous job. Apart from the money, occasionally just good luck. re
p
they may also be giving up a secure income for a re
n
more risky future. The satisfaction of settin g up the e
enterprise may well be balanced by the increased risk. Key terms ur
s
One of the features of entrepreneurs is that they are
Business plan – a statement of the business plans for
willing to take the risk.
the future; what it hopes to achieve and how it will go
What is risk? about doing that
External fi nance –money invested in the business from
sources outside the business
All new businesses carry some degree of risk. The
Profi t – the return made by the business after all costs
newer or more innovative the idea the greater the risk
have been deducted
of failure will be. Even with established ideas there
is still risk. Maybe there is too much competition or
maybe competitors act aggressively towards the new
Test yourself
Exam insight
1 List two qualities an entrepreneur might have. (2)
Be careful not to get too excited by the apparent 2 Explain the differences between the different
success of a young entrepreneur. In the exam carefully sectors of the economy. (9)
analyse which factors contributed to the success of 3 What is meant by opportunity cost? Give an
the business. Was it a good idea at the right time? example. (4)
Was it good planning and careful management? 4 Why is profi tability important? (4)
The reasons for business success are very varied. 5 What is meant by calculated risk? (2)
Be sure to discuss the issues that are relevant to the 6 What does someone setting up a new business
circumstances. need to do before starting out? (4)
4
Unit 2 Identifying business opportunities
What? ● Researching existing markets is an obvious way to
see if there is a gap in the market. A useful tool
for this is market mapping. This defi nes the key
A business opportunity is a possibility of starting
features of the market and then matches that with
up a new business or introducing a new product
existing products or businesses within the market.
into the market. Successful entrepreneurs seize the
This is then drawn up on a diagram and any gaps
opportunity and get into the market before others.
can be seen.
● Brainstorming involves coming up with ideas
Why? however ridiculous they may seem. Hopefully one
of the ideas will work.
● Researching future markets: by looking at likely
The interests of the person starting the business
changes to society, fashion or the economy new
often generate new business ideas. A cycling fanatic
business ideas may be found. The growth in the
may start a bicycle repair shop. A young mother
e
d with a small baby may fi nd that she is unable to buy number of older people has meant new business
ui opportunities in providing for this segment of the
G something that she needs so may start up a business
n to fi ll that need. An inventor may come up with a market. An economic downturn may mean that
o there is an opportunity to introduce a cheaper
si new product so will start a business to manufacture
vi and sell it. alternative to existing products.
e
R Others want to start their own business so will look

S
A around for a gap in the market or come up with a What then?
r new business idea. Some entrepreneurs introduce an
o
f idea that has worked in another country.
s Once the entrepreneur has come up with a business
e
di idea it is important to research the idea before starting
u
t Which? up. The business needs to know if there is a market for
S
s the product and what is the nature of any competition.
s
e As a new business it is unlikely that funds will be
n New business ideas come in many forms:
usi ● They may fi ll a gap in a local market – there is no available for full-scale market research. However
B research is vital. Depending on the type of business,
Indian restaurant in this town. A seaside resort

QA may have many ice cream stalls but ther e may be small-scale research can be done. If the business is
selling to other businesses then talking to those
A a gap in the market for an ice cream parlour where
businesses may give an idea of how well the product
customers can sit and eat their ice creams.
will be received. A High Street business can check
● They may satisfy a niche. Parking is readily available
out the number of passers-by and look to see what
at UK airports but some fi rms have introduced a
competition is in the neighbourhood and what prices
valet service where the traveller is met at departure
similar outlets are charging. A new product can be
and the car taken to a car park and then brought
tried out on family and friends before launching to
back to arrivals when the traveller returns. This is
the general public.
an expensive alternative but satisfi es a niche in the
market.
Exam insight
● They may be based on a new way to sell an
existing product or service. The internet has seen
When answering a question about new business
a growth of many new businesses selling products
success or failure, look very carefully to see why this
traditionally only available on the High Street.
business succeeded. Think about business theory.
Glasses Direct sells prescription glasses directly to
Was there a gap in the market? Was the product
the customer using the internet. ‘A Quarter Of’ is
innovative or differentiated in some way from existing
an online old-fashioned sweet shop.
products? Was the business start-up well planned?
Was the marketing effective? But remember to look at
How? other factors. Did the entrepreneur have any special
qualities? Was it a case of being in the right place at
the right time? Did they spot a business opportunity
Spotting a business opportunity may be a matter of
and act on it?
chance or luck but there are tools that can be used.
Franchising Application 5
Not everyone starts a business completely from
From reggae artist to millionaire
scratch. One of the ways of getting into business is
to take on a franchise. This means buying the right The story of Levi Roots is a modern day success
to use the name and trading methods of an existing story. The ‘Reggae Reggae’ sauce that has made
business. him rich and famous was based on a recipe handed
When a business idea has been successful in one down from his grandmother. It was initially made
location, the owner can choose to fi nance setting up by him and his family in their kitchen and sold at a
more stores, or sell the rights to franchisees. From London street market. Following his appearance on
its origins with one sandwich shop, Fred de Luca’s Dragon’s Den a deal was struck with Sainsbury’s. It
Subway chain now has more than 32,000 stores. A rapidly became one of their fastest selling products.
fee is paid for the franchise and training is given. The Since then Levi has expanded his range of products,
person taking on the franchise has to run the business opened a restaurant, written a cookery book and
in exactly the same way as the master business. For become a TV chef.
a Subway sandwich shop, for example, that will So what was the secret of his success?
mean the same products, the same layout and same A good product – fi nancial backing – excellent
branding. publicity – the entrepreneur’s personality. All of
The advantages of a franchise are: these together have contributed but you can’t help
● The idea has already been tested. Banks say that wondering if the real break was when a talent scout
franchise start-ups are less likely to fail. Over 90 for the Dragon’s Den programme spotted him. Luck
per cent of franchises survive for over three years perhaps?
as compared to 70 per cent of all new start-ups. I
d
● For the original owner (the franchisor) it is a way of e
n
expanding the business without having to worry t
Themes for evaluation if
about running every outlet. y
in
● The franchisee gets a tried and tested business Starting up a business is a challenging experience. g

idea. b
Coming up with new ideas can vary from the fl ash u
● It is easier to obtain external funding for a franchise s
in the pan through to the result of careful planning in
than for a completely new business. and research. There is no magic bullet for having a e
s
The disadvantages are: s
successful business but analysts would all agree that
o
● The franchisor only gets part of the profi ts from good research backed up by careful planning are vital p
the business. p
ingredients. Often it looks as if luck plays a big part, o
● A poor franchisee may damage the business concept. but luck is usually helped along by determination and rtu
● Thhavee ftroa nrucnh itsheee sb udsoin nesost ahs aovuet litnoetda li nc othnet rforal.n cThhiesey good planning. nitie
agreement. s
Support Key terms
Franchisee – a person who takes on a franchise
Help for people who are setting up a new business
Franchisor – the owner of the franchise idea
is very varied. The Government’s main service for
Niche – a small part of a larger market
new businesses is Business Link. It runs a website that
offers advice to people wishing to set up a business
and provides links to other organisations that may
be able to offer either fi nancial help or advice. Many Test yourself
local authorities also provide help and advice to
1 What is meant by a gap in the market? (2)
would-be entrepreneurs. Most banks offer a service
2 What is a niche market? (2)
to help new business start-ups. This mainly consists
3 How can an entrepreneur with limited resources
of help with the preparation of business plans. Some
conduct market research? (4)
organisations will offer mentoring. This is where an
4 List two advantages of taking up a franchise. (4)
experienced businessperson will give guidance and
5 How does the Government help people to start up
support to someone starting out.
new businesses? (2)
There are also schemes such as the Prince’s Trust
6 Why do they do this? (4)
that help young people to start up businesses.