business plan definition gcse

Business Plans

In this post

Business plans are used to outline the industry in which a business is working in as well as the economic structure of a company to give an idea of the financial prospects of a business. They are used primarily to organise the routes to market that a company will take and give projections on earnings and target dates for when the company expects to have a certain income.

Writing a strong business plan is important for any business, whether large or small, and is the perfect way to map out your route to success. Not only will the plan contain your aims and plans to attract new customers but it can also act as a strong tool for financial projections and help you to set out goals for your company. Throughout the units that we have already covered on this course we have seen a lot of aspects that could be included in a business plan, and including as much information as possible is key.

A lot of entrepreneurs fail to produce a clear business plan when they set up a new company and this can be a big issue further down the line. By not outlining your company and its operations you may affect the business in a negative way and be unable to keep track on the progress and route the business is taking. If you are seeking finance to launch your company it is more than likely that you will need to create a business plan to secure a loan, but this should not be thrown away once you have started the business. Your plan can be updated and adapted at any time and you must try to keep things relevant and up to date so you know the long-term aims of your company.

Why create a business plan?

Some entrepreneurs fail to create a business plan before starting a company because they feel it is a waste of time. They know what they want to do, how they want to do it and everything that is needed has been formulated in their heads. This is a very good skill to have, but without your thoughts and projections down on paper it can be very easy for them to become misinterpreted, forgotten or skewed. Simply having things thought out in your mind is not enough to convince others or explain your strategies to those you are working with. Business plans are used to organise your approach and produce a strategy that allows you the best possible chance of success. They should include:

Information about your company so that you can plan the structure and objectives which you have
Your relationships with others and how these can be used (e.g. banks, lenders and accountants)
To find weaknesses in your plans and areas where you must improve
Areas for discussion so that you can find out other people’s opinions and include them in the planning process

Some people start a business and want everything to be done immediately. With great confidence that they can do it all alone and have no input from experts, they may not stop and think about forming a clear plan that includes facts and figures to help them along the way. Doing this can be of massive detriment to any business and you need to gather as many opinions, facts and ideas as possible from those around you.

What to avoid

A business plan should include lots of information but there are a few things that should be avoided. You should put some restrictions on the long-term (over 1 year) predictions of your finances. A long-range prediction on the amount of money you will have coming into the business can be completely meaningless because it is very hard to predict how a business will perform far into the future.

Very few business plans get the figures projected spot on, so remember to give a good indication of what you expect to earn but try to be conservative with this. By exaggerating the earning potential of the company you will not be impressing anyone and this will make it difficult for you to plan your spending. Outline clear time frames and indicate your aims during these periods. Try to show what you will be working on at any time, for example if your business will take quite a lot of setting up then the first 6 months may be devoted solely to this and you should outline this in your plans and projections. Try to correctly anticipate the money and time that will be required for processes to be completed and always factor in a margin of error. By slightly exaggerating the money that will be required when completing a stage of expansion or setting more time than is needed, you will be well prepared if some unforeseen issue crops up.

Don’t just use the business plan to explain how great your product or service is. This alone will not turn your business into a big success (although it is very important). Identifying areas to improve and how you will market your company is much more important than simply relying on the uniqueness of your product.

The purpose of a business plan

Business plans are used for a variety of different reasons and the importance of these should not be underestimated. Creating a plan that is precise and includes information that is relevant to the new or existing business will ensure that ideas are implemented quickly. Without a solid business plan it will be much more difficult to judge the success of the new venture and the direction of the company will be hard for everyone to see.

Minimising risk

The risks when starting a new business can be huge. Money is invested into new businesses and time will also be spent on getting a company off the ground. Without a business plan in place, owners and employees could end up wasting their time in certain areas. Using resources inefficiently and having no clear direction for a business can lead to disaster very quickly. The best way to avoid this is with a clear outline of what the business needs to work on and what resources will be needed in order to make the venture work. A business plan will be used to set goals and objectives while losing no time in areas that do not see a large enough return on the investment.

Securing finance

Many people use business plans to secure finance for a new venture. This finance can come from several different sources such as banks, investors and start-up funds. Having a business plan that shows exactly how the business will operate and where money will be made will act as a way to convince potential investors to finance the company. With clear profits to be made and a route to market mapped clearly, investing in a business will be a much more desirable prospect for a potential investor.

Formats of business plans

There are many different formats which a business plan can be created in but the main areas to cover are:

Executive summary

Company summary, products and services, market analysis, strategy and implementation, management and personnel, financial plan.

Any business plan should include an executive summary which gives an outline of the business and the vision of the owners. Here you should briefly explain the business and its activities as well as the key areas that will help the company to succeed. A mission statement can be included to explain why your company will be unique in the market and what will give you the edge over your competitors.

You should also include some information about the financial aspirations of the company here to show the economic aims over the first few years in operation. Remember, these do not need to be hugely accurate and taking a realistic look at what can be earned is essential. It is usually best to complete the executive summary of the company last as you can include information from other sections in this part of the plan to give a good overview and concise insight into the business and your plans.

The company summary will explain key aspects of the operation of the company. This includes the owners of the business as well as where the business is located. Information about all directors must be included in this area of the plan and you should summarise their roles within the organisation. If you have any other personnel that will be involved at a senior level then they should be included also. In this part of the business plan you need to outline the funds required to set up and maintain the business also. By including information about the company’s location and operations you will be able to forecast the money required to get the company started and any investment that will be needed. Try to include a spreadsheet showing where the initial funding will come from and how much is being put into the business to start with. Remember, most new businesses make a loss in their first year due to the expenses involved in starting a new company, so be realistic. Plan the initial outlays and costs carefully and make sure you know the limits to how much you can put into the company to get started.

The location of the business can also be included here and any rent that you will be required to pay can be outlined and the costs per square foot for the company premises. Then you can go on to make projections about the sales required to cover all of your fixed costs such as office and equipment rentals.

Next we move on to explaining the things which will earn your business money – the goods and services that you have to offer. In this section you must include descriptions of what you can offer your customers and the prices you will be charging. Outline what makes your goods and services special and the key aspects that will influence potential clients and convert them into paying customers. It is also a good idea to compare your pricing structure to your competitors. It may be that you offer the same products but cheaper, or with any additional features to make your products more appealing. You should explore the need for your products and services to be better than any of the competition. As a new business you may struggle to compete unless you have something that nobody else has. By bringing to the market something which is already selling well with another company that has established its brand in the marketplace, you might struggle to take a large enough section of the market to warrant starting a whole new company. If this is the case then you must compare your pricing to your biggest competitors and ensure that you are competitive.

In this section you can also include any products and services that you may offer in the future. Explain your product development processes and how you will be able to innovate and bring new products or services to the marketplace.

Next you need to carry out some market analysis to identify your potential customers . In this section of the business plan you need to include information about your ideal customers and what sort of people they will be. Think about the earnings of your potential clients, the type of lifestyles they will live and the products and services they expect from a business. This part of your plan is great for you to use figures about your market and show any growth projections for the sector in the future.

Explain market trends and analyse the need for your goods/services in this sector. Attempt to find some facts about the disposable income of your potential customers and target certain people who will be interested in what your company offers. Think about how you will be attracting your customers and the potential for growth over the first 3 years in operation. Make estimations about the number of people in the area where you will be offering your products and services to get a good idea of how many different potential clients you can attract. Having a good understanding of your target market will give you the tools to design marketing strategies and techniques to attract the maximum number of customers to your business.

Having outlined your market and explained who your products/services will attract, it is time to explain your techniques when doing this and show how you are going to market your company. Explain the key aspects of what you offer and the main selling points that should be tailored to suit the target clients that you have in mind. Products designed for the more affluent will need to be luxurious and have an exclusivity about them, whereas items that are for people with limited incomes will need to offer greater value for money. Try to understand a clear link between the market in which you will be operating, your potential clients and the main aspects of your business which you should focus on.

Ensuring that your business suits the needs of customers is essential to getting the most customers. For example, opening up a luxury spa in an area where there is high unemployment and typically lower incomes will encounter lots of issues as the potential customers (those within a 15-mile radius) will have no need for this service and may not be able to afford what you have to offer. You will need to come up with at least five ways of promoting your business that will appeal to your target market and attract clients. Remember all of the techniques and skills we discussed on marketing and try to link what you know about your potential clients to the advertising methods you will use.

Here you can also outline the potential sales forecasts and investments which you will make when promoting your goods and services. Come up with some realistic projections about the money to be spent on advertising and increasing awareness of your brand as well as any sales targets you may wish to set. Be conservative with your sales projections as it takes time for any business to get a good level of customers and building brand awareness does not happen overnight. Your sales in year 1 will normally be fairly low and you need to take this into account when projecting your income and the amount it will cost to set up your company.

The next thing to plan is the personnel involved in your business. This will include the owners and directors as well as any senior managers that are to be involved in the company. Explain the team structure and hierarchy of your new company and the number of employees you will be hiring. Knowing the team behind the company and their individual duties will let you outline the various skills that your team possesses and establish each person’s duties within the organisation.

Outlining the duties of each person and giving a brief job description is a good way for you to understand the team dynamic and responsibilities of each member. Most new companies make the mistake of hiring too soon, but with a clear plan of the business personnel that will be involved in your company you will be able to ensure each person is needed for the business to operate. Establishing a business will require you to be frugal in your approach and employing staff that are not needed can have a terrible impact on your profits and end up costing you tens of thousands of pounds a year.

Outline the wages of your employees and then come up with some totals for staffing costs that can be used when writing your executive summary.

Your financial plan will provide a clear breakdown of all the income and outgoings of the business that you expect. These will only be projected figures so will be likely to change in reality, but you should be able to predict fairly accurately using your knowledge of costs incurred and the pricing and potential customer base for your products/services.

Make projected figures for your fixed and variable costs as well as the profits you expect to earn from sales. This will then help you to create a break-even analysis for your company that will show the amount of money required to cover all of your outgoings. Remember that your first year will have fixed and variable costs as well as additional outgoings which come from setting up your company. You will also have a limited number of sales during the first 12 months as you build up your customer base, so the projected net profit for year 1 will be lower than any other year. Try to think about the most popular goods/services you offer and come up with an average sale price for your customers. This will then help you to identify the number of customers you need in your first year to break even.

Come up with some cash flow and profit and loss charts (look over our work in Unit 1.3 to help) to project how much money you can expect to see in the business each year. This will help you to come up with clear and concise predictions for how much money you will be making in your first three years.

Reformulating a business plan

If you do ever happen to make a slight error in judgement on your initial business plan this can always be altered and the plan changed as required. The chances of figures being completely correct in your first projections are very slim and there will be certain things that you miss or random payments to be made when setting up your business which you did not account for. This is the main reason why being conservative with your income projections and adding in a ‘safety net’ figure to your costings will help you to deal with these circumstances. Business plans should be flexible and are a working document, so chopping and changing them is fine. When doing this try to use what you already have to create a new plan for the next few years rather than just altering figures to make it look like you got the initial plan correct.

Business plans are working documents, so they should be altered and added to as time goes by to determine where your company is heading and how it will get there. Being understanding of the nature of business and the fact that you will not be able to predict certain outcomes will give you an edge and allow you to put in place certain measures to help if you ever do come up against any problems.

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INTERACTIVE VIDEO

It’s time to follow the journey of Finley Thomas, an aspiring entrepreneur who dreams of opening a small local shop. Throughout the interactive video, we will follow Finley through the process of creating a well-thought-out business plan, which is essential for the success of any business venture.

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CASE STUDY ANALYSIS MP MECHANICS

The real-life case study explores the journey of Molly Pratt, who started her own mechanics workshop in a small town in Lincolnshire, specialising in luxury vehicles. Despite approaching a bank for a loan of £20,000 to cover the costs of specialist equipment, she was unable to afford to employ any additional staff, resulting in high levels of stress. Unfortunately, MP Mechanics closed down in January 2019 due to a lack of interest in luxury vehicle repair and Molly's difficulties in managing the workload alone.

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Business plans and their purpose

Business Plans and Their Purpose

What is a Business Plan?

A business plan is a detailed written document outlining the goals, objectives, strategies, and financial forecast of a business.
It is usually created at the start-up phase of a business but should be revisited regularly as a business evolves and grows.
A business plan can also identify potential issues or risks that a business might face and provide possible solutions.

Purpose of a Business Plan

Guide for operation: Business plans provide a clear path that the business should follow. By having a well-laid plan, decision-making processes can be simplified and it helps to stay focused on the pre-determined goals and objectives.
Attracting investors: A business plan is a key tool in convincing potential investors or lenders about the viability of the business idea. It gives them a clear picture of the business’s potential for success and return on investment.
Evaluating progress: A business plan can actually act as a benchmark that allows the business to track progress and growth. It can help identify areas where the business has done well or where improvements need to be made.
Resource allocation: It aids companies in the optimal distribution of resources, ensuring they are used effectively to achieve set objectives.
Risk management: A good business plan outlines potential risks that the business might face and provides a guide on how to mitigate those risks.

Key Components of a Business Plan

Executive Summary: This is a brief overview of the business plan, highlighting all key points. It should inspire the reader to read more about the proposed business.
Company Description: This section gives clarification about the legal structure, location, type and nature of the business.
Market Analysis: Here, the business should denote the target market, customer demographics, market trends, and competitors. It helps to understand the unique selling proposition of the business.
Organisation and Management: It describes the organisational structure and the team who will be running the business.
Services or Product Line: This explains in detail what product/service the business is offering and how it serves the needs of customers.
Marketing and Sales: This section discusses the marketing and sales strategies to attract and retain customers.
Financial Projections: This provides an overview of projected revenue, expenses and profitability over the next three to five years.
Funding Request: If the business is seeking for investment, this section would detail the amount of funding required and how it would be used.
Appendix: This section has supporting documents like charts, graphs, designs, legal documents, etc.

Remember, a well-drafted business plan can be the difference between the success or failure of a business. A strong understanding of the above points will not only help in your exam preparation but also in real-life business scenarios.

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Specifications that use this resource:

GCSE Business 8132

Subject specific vocabulary

These are the definitions of key terms used in our GCSE Business specification (8132). Students should be familiar with and gain an understanding of these terms.

The intention to reach a goal.

Air pollution

The presence or introduction of harmful substances into the air causing disease, allergies or damage to humans, animals, plants or the built environment.

Something the business owns; it has a value.

Average rate of return

The average profit for the year as a percentage of the original investment.

Average rate of return = average return per annum/initial investment × 100

Boston matrix

A tool for analysing the contribution made by each product in a business’ product portfolio. It plots each product’s position according to its market share and the rate of growth of the market.

Brand image

The consumers’ perception of the brand; its character, qualities and shortcomings. It is developed over time and operates as a consistent theme through advertising campaigns.

Break-even chart

A diagrammatic representation of the costs and revenue for a product; it plots total costs against total sales revenue, showing the break-even point where they cross.

Break-even output

The point at which the business’ total sales equals the total costs. There is neither profit nor loss.

Buffer stock

A stock of raw materials held in reserve to protect the production process from unforeseen shortages.

Business plan

A detailed statement of how the business intends to operate, either at start-up or during a given period of time. Business plans are based on forecasts and so cover only a short time.

Money that the business has in cash or at the bank.

Cash flow forecast

A financial planning tool that estimates the money coming into and going out of the business on a month-by-month basis; it allows the business to predict times when additional finance may be needed to maintain liquidity.

Cash inflow

Money received by the business from its operations or investments.

Cash outflow

Money paid out by the business to fund its operations or investment activities.

Centralisation

Maintaining control by keeping authority at the senior levels of the organisation.

Chain of command

The line through the hierarchy that shows who is responsible for whom from top to bottom of an organisation.

Channels of distribution

The route the ownership of the product transfers from the seller to the buyer; it may be a single transaction or pass through others such as wholesalers, distributors, agents and retailers.

Closing balance

The amount that remains in the account at the end of an accounting period.

An amount of money paid to an employee that is based on a percentage of the sales he/she achieved; paid in addition to a basic salary.

Competition

The rivalry between businesses looking to sell their goods/services in the same market.

Competitive pricing

Setting the price of a product so that it is in line with competitors’ prices.

Consumer law

Laws designed to ensure that businesses make products that are safe and of good quality, and that they deal with customers honestly and fairly.

Consumer spending

The money spent by households on goods and services to satisfy their needs and wants.

Contracts of employment

A legal document that sets out the terms and conditions of the job for the employer and the employee.

The money spent by a business on goods and services.

Cost-plus pricing

Setting the price of a good or service at an amount higher than the cost of producing it so that a profit is made.

Individuals, businesses or organisations that purchase goods/services and make decisions about which supplier to choose.

Customer engagement

The relationship between the business and the customer that puts the customer’s requirements at the centre of the operation to build brand loyalty.

Customer loyalty

The likelihood that past customers will continue to buy from the business, enhanced by high quality customer service and/or reward programmes.

Customer satisfaction

Whether customers are pleased with the goods/services they receive; whether they would purchase again.

Decentralisation

Where authority is spread widely through the organisation.

The reorganisation of the organisation’s employees so that there are fewer levels of management.

Allocating a task to someone who would not normally be responsible for it.

The quantity of a particular product that will be bought at particular price over a specific time.

The people who are elected by the shareholders to run the business on their behalf.

Diseconomies of scale

When a business grows too large, leading to a possible increase in unit cost.

Disposal of waste

The removal, storage or destruction of unwanted material. Methods include recycling, burning and landfill sites.

A portion of the after-tax profit that is paid to shareholders according to the number of shares they own.

Business transactions carried out electronically on the internet.

Economies of scale

The cost advantage of producing on a large scale. As output increases the unit cost decreases.

Individuals who work full time or part time for the business; they have a contract of employment detailing their duties and rights.

Employment law

Rulings that relate to the rights and responsibilities of people who work for a business; they affect the recruitment and selection process and how the business deals with its workers.

The ability to identify business ideas and opportunities to bring them to fruition and to take risks where appropriate.

Entrepreneur

A person who has the vision to use initiative to make business ideas happen, managing the resources and risks.

Equality Act (2010)

Protects people from discrimination in the workplace and in wider society. It sets out the different ways in which it is unlawful to treat someone.

Ethical objectives

A business’ goals that relate to fair business practice or moral guidelines and make a positive contribution to the business’ reputation.

The moral principles that guide how a business operates.

Exchange rates

The price of one currency based on another or the cost of buying one currency from another, for example £1 = $1.21.

The process of increasing a business’ size.

Good/service sold to a customer in another country.

Extension strategies

Methods that can be used to prolong the life of a product; could include price reductions, modifications to the product or relaunch.

External growth

The growth of a business by joining with another by merger or takeover.

External sources of finance

Obtaining funds from sources that are not part of the business; possibilities include bank loan, mortgage, overdraft, additional partner or share issue.

Factors of production

The elements that combine in the production process: land, labour, capital and enterprise.

Fixed costs

The costs that stay largely the same, regardless of the business’ output.

Flat organisational structure

An organisational structure with a wide span of control and few levels of hierarchy (a short chain of command).

Flow production

Using a production line to make goods continuously and in large numbers.

Focus groups

A small number of people from the target market brought together to discuss a particular product; produces qualitative data about their preferences and opinions.

Franchising

The sale of the rights to use/sell a product by a franchisor to a franchisee. A fixed fee and/or a percentage is paid in return. The franchiser specifies the standards and provides training and support.

Fringe benefits

Additional ‘perks’ that are in addition to a wage/salary; they are liable to income tax.

Working all the usual hours required of an employee; usually 35 hours or more.

Gap in the market

An opportunity for a new business (or expansion) which may meet a need that is not being met, or a group of potential customers who are not yet purchasing a particular good/service.

Global warming

The steady increase in the earth’s temperature due to emissions and the build-up of greenhouse gases, resulting in climate changes.

Globalisation

The trend for large businesses to operate on a worldwide scale; money, goods and services can be transferred across national borders.

Items that are produced from raw materials for sale to businesses or consumers.

Government grants

Money available from the government to fund projects that it wants to support; the money is not repaid, but there are conditions and often progress reports are required.

A business’ increase in size. Methods include: asset value, employees, market share, markets, profits and sales.

Health and Safety at Work Act (1974)

Sets out the duties and responsibilities of both employers and employees for health and safety in the workplace.

The management structure of a business/organisation showing the levels of responsibility. It is often shown as an organisation chart.

Hire purchase

Buying items by making a small initial payment and paying the remaining amount in instalments over an agreed period of time.

Good/service bought from a supplier in another country.

Income statement

A summary of the revenue and expenses over an accounting period that lead to a profit or loss position.

Training given to a new employee when they start a new job; it provides information about the business, its operation and working practices.

Testing/examining items to check that materials or items conform to the specified requirements/standards.

Integration

Two or more businesses join together.

Interest rates

The rate charged for borrowing money over a period of time, or the reward for saving money.

Job analysis

The process of determining what the job entails, including responsibilities and tasks.

Job description

A summary of what the job entails, including job title, duties and who they are responsible for/to.

Job production

A method of creating a single product to meet an individual order.

A system where two employees choose to share a full time job; they receive the salary and benefits on a pro rata basis according to the proportion of the full time hours that each works.

Just in case (JIC)

Organising procurement to ensure that the production process never runs out of stock, reducing the number of sales lost due to insufficient raw materials.

Just in time (JIT)

Organising the ordering of raw materials and components to be delivered just before they will be used, reducing the need for storage.

Lean production

Continually working to reduce the resources used to create products: raw materials, labour, machines and premises.

Level of employment

The percentage of the population of working age that are employed.

The extent of the owner’s/owners’ responsibility for the debts of the business.

Limited liability

The owners are not responsible for the debts of the business. The limit of their liability for the business’ debts is the amount they invested.

A fixed sum of money borrowed for a specified period of time at an agreed rate of interest; repaid in instalments.

Local community

The individuals, other businesses and organisations that are located close to the business. The business interacts with these groups.

The site of a business and the reasoning behind the choice of site.

Managing the movement of supplies and products to ensure the timely delivery of supplies to the production process and finished products to customers.

Where expenditure is greater than income.

Loss leader

A good or service sold at below cost price to bring customers into the shop with the intention that, once there, they may purchase full-priced items too.

Organising and coordinating business activities in order to fulfil production and meet the business’ objectives.

Margin of safety

The amount by which current sales exceed the break-even level of output.

Where those wishing to buy goods/services make contact with those who have them to sell.

Market research

Collecting information about the customers’ needs, wants and preferences that will help the business to make design, production and marketing decisions.

Market share

The proportion of the whole market for a product that is held by the business.

The coordination of activities that ensure that customers get what they want, in the amounts they want, when they want it and at a price that suits them.

Marketing mix

The combination of four areas of marketing activities (price, product, promotion and place) to make sure that customers’ needs and wants are met while generating optimum revenue.

Business transactions are carried out electronically by mobile phone.

When two or more businesses agree to join together.

A method of borrowing to purchase property, using the property as security.

The reasons people are interested in and committed to their job.

National minimum wage/living wage

The lowest hourly rate that can legally be paid by an employer to an employee.

The human wants that are essential to survival; clothing, food, shelter, warmth or water.

Net cash flow

The difference between cash inflows and cash outflows.

Net cash flow = cash inflows – cash outflows

Noise pollution

A type and level of noise that is excessive and disturbing to people or animals.

Not-for-profit organisations

Associations, charities, co-operatives or voluntary organisations set up to further non-monetary ideals such as cultural, educational, religious and public service. Profits/losses are retained/absorbed.

A specific statement that defines a precise goal that can be measured and delivered within a given time.

Off-the-job training

Employees are trained away from their job, at a college, training provider or the business’ training centre.

On-the-job training

Employees learn alongside experienced colleagues while they are doing the job.

Opening balance

The amount brought forward from the end of the preceding accounting period so that it is the starting figure for the new one.

Opportunity cost

The cost of making one choice concerning the use of limited resources at the expense of an alternative choice.

Organic growth

A business grows by increasing its output, by increasing its customer base or by developing new product(s).

Organisational structures

The way in which the organisation is divided into levels of management, functions and responsibilities.

Outsourcing

Contracting another business to carry out some of the business’ activities, often to reduce costs.

Borrowing from a bank by drawing from a current account so that the balance becomes less than zero.

Individuals who own the business or own a share(s) in it, in return for the rights to decision making and profits, balanced with the risks involved.

Working only a proportion of the full time hours.

Partnerships

A business that is owned and operated by a group of between 2 or more people.

Person specification

Identifies the requirements of the job holder, including qualifications, experience and skills.

Point of sale

Opportunities to communicate information about the product in the place where it is sold (retail outlet); window displays, hanging signs or shelf signs.

Post-sales servicing

Maintenance or repair of equipment by the manufacturer or supplier during or after the warranty.

Managing the relations with groups such as consumers, the media, pressure groups or investors to present a favourable impression and generate interest.

Price penetration

Fixing a low price when a new product is first introduced (into an established market) so that the product gains market share quickly. Once the product is established, the price is then raised so that profit is increased.

Price skimming

Setting a very high price when a product (often technology item) is first introduced to the market in relatively small numbers; only those who can afford to pay high prices to own the latest models will be able to purchase the product. The price is later reduced so that others can afford to buy.

Primary industry

A business that extracts the earth's natural resources.

Primary research

Collecting information first-hand direct from the public; field research including surveys, questionnaires and testing designed specifically for the market/product.

Private limited company (ltd)

A business that is owned by shareholders; the shares are not available to the general public. Shareholders have limited liability.

Procurement

The process of buying goods and services including dealing with:

selection of suppliers
analysing and negotiating prices
making the purchase
managing payments.

Product differentiation

Developing the features that set a product apart from others in the market (such as benefits, style, price) and using that as part of advertising and promotion.

Product knowledge

An in-depth understanding of the features, use and application of the good/service that will enable the person selling it to provide any information that the purchaser wants before committing to buy.

Product life cycle

The stages through which a product travels during its journey from being an idea to being old and dated: research and development, introduction, growth, maturity, decline.

Product portfolio

The range of products offered by one producer.

Productivity

The amount produced by a worker/machine/factory in a given time; the ability to produce more output with fewer resources.

The difference between the money received from the sale of a good/service and the amount it cost; the amount that remains after all the costs have been paid.

Profit = total revenue – total cost

Profit maximisation

A business’ ability to make maximum profit with low operating expenses.

Profit sharing

A scheme that pays employees an additional amount based on the year’s profits.

Communicating information about the product to:

make consumers aware of a product
remind customers about a product
persuade customers to buy.

Proximity to market

Businesses that serve their customers directly must be located close to those customers.

Public limited company (plc)

A business that is owned by shareholders. Anyone can buy shares in the business. Shareholders have limited liability.

The business buys the goods and services that it needs for producing the goods it sells or for delivering the services it sells.

Qualitative market research

Collecting information about potential customers’ opinions and preferences about the attributes/characteristics/properties of a product; open questions allow respondents to express their own views by not limiting their responses.

Quantitative market research

Using sampling techniques such as surveys where the findings are expressed numerically; closed questions allow a limited choice of responses and are easy to turn into statistics for analysis.

Raising finance

Getting the money to pay for starting the business or for developing it.

Raw materials

Businesses that use raw materials that are heavy and/or bulky choose to locate close to their suppliers to reduce the cost of transport or storage.

Recruitment

The process of hiring a new employee.

The conversion of waste into reusable material.

A business or person that sells goods to the consumer.

Retained profit

An internal source of finance; a portion of the year’s profit is kept back to fund projects.

The income generated from the sale of goods/services.

The possibility that the return on investment will be lower than expected.

A method of paying employees for their work; based on a fixed annual amount, normally paid monthly.

Scarce resources

When the raw materials that are available are not sufficient to meet needs.

Secondary industry

A business that uses raw materials to manufacture goods or construct items.

Secondary research

Examining information from published sources; desk research using information that has been collected for other purposes.

Segmentation

Breaking the whole market for a product into different groups or types of consumers with similar needs/wants/characteristics; enables the marketing mix to be designed to meet their needs more precisely.

The process of choosing which applicant to employ.

An action that is carried out to fulfil a need or demand in return for payment.

The units of the business that are available for sale to investors.

Share issue

New shares in a business made available for the public to buy.

Shareholder(s)

Those people who own shares in a limited company; each shareholder is a part owner of the business.

Shareholder value

The value that a shareholder is able to get for the money invested in the business: capital gains, dividend payments, pay-outs to shareholders or proceeds from buyback programmes.

Social objectives

A business’ goals that relate to fair treatment of the people concerned: customers, investors, suppliers or workers.

Sole traders

A business that is owned and operated by one person.

Sources of finance

Ways of obtaining the funds the business needs; money may be needed to meet short or long term needs.

Span of control

The number of people for whom a manager is directly responsible.

Staff retention

Keeping staff once they have been employed.

Stakeholders

Those with an interest in the way that a business operates.

Statement of financial position

Reports the assets, liability and equity of a business on a specific date; formerly known as the balance sheet.

Styles of management

The methods used by those in leadership roles to achieve the most effective outcomes from the employees for whom they are responsible.

A business that provides goods/services.

Supply chain

The network of organisations, people, activities, information and resources that take the product/service from supplier to customer.

The capacity of a business to stay in business. It is dependent on the business selling sufficient amounts of its goods/services to cover all its costs.

Sustainability

The process of operating without damaging the environment or depleting natural resources.

One business takes control of another.

Tall organisational structure

An organisational structure with a narrow span of control and many levels of hierarchy (a long chain of command).

Target market

The particular group of customers to which a business aims to sell its product; a particular market segment.

Technical economies of scale

The benefits that large businesses gain from having the funds to invest in expensive machinery that brings cost savings.

Attempting to sell a good/service by making the initial contact by telephone.

Tertiary industry

A business that provides services to consumers or other businesses.

Total costs

All the costs involved in producing goods/services.

Total costs = fixed costs + variable costs

Total quality management (TQM)

A philosophy that involves everyone in the business in the quest for continual improvement in the attitudes, practices, structures and systems that combine to create a top-quality product.

Trade credit

The process of buying items from a supplier and paying for them later; for example, 30 days after invoice date.

Trade descriptions

Protecting customers from false or misleading descriptions about products or their prices.

Traffic congestion

The effects of overuse of transport networks, for example slower speeds, traffic queues and longer journey times.

Employees learn the skills and techniques needed to do the job or to prepare for a new role.

Unique selling point (USP)

The key benefit of a good/service; it differentiates the product from others and will be the focus of advertising and promotion.

The average cost of each unit.

Unit cost = total cost ÷ quantity

Unlimited liability

When the owner(s) are responsible for all the debts of the business. Their personal funds would be used to settle the business’ debts if the business’ funds were insufficient.

Variable costs

The costs that change as the business' output changes.

A method of paying employees for their work based on an hourly, weekly or piece of work basis, usually paid weekly or monthly.

Things that people would like to have; not limited to the things they need to survive.

The unwanted material left over from the production process; it may have little or no value and the business may have to pay for its disposal.

A business or person that buys goods in large quantities from producers, stores them in warehouses and sells them on to retailers.

Word of mouth

Personal recommendations from satisfied customers to prospective customers.

Zero-hour contract

A contract of employment where the employer is not obliged to provide any minimum hours of work; the employee is not obliged to accept any work that is offered.

Document URL https://www.aqa.org.uk/resources/business/gcse/business/teach/subject-specific-vocabulary

Last updated 02 Aug 2022

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Business Plans - GCSE Business Studies Full Lesson

Subject: Business and finance

Age range: 14-16

Resource type: Lesson (complete)

Last updated

27 February 2024

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This lesson / resource is from Unit 1 - Understanding Business Activity and looks specifically at Business Plans .

I normally teach this in Year 10 and it has been designed for GCSE with the following learning objectives:

Know what a Business Plan is and why a person might write one.
Understand what is required in writing a business plan and the features of one.
Assess the problems a business might have if they do not have a business plan

This download includes:

Full lesson PowerPoint
Round robin / search type activity
Lesson plan

All necessary resources to run the lesson are included in this download and this links back to earlier topics (enterprise / Entrepreneurs and Added Value) and also to later topics such as Legal Structures / Marketing.

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Business plan

A detailed description of a new or existing business, including the companies strategy, aims and objectives, marketing & financial plan.

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Setting Business Aims & Objectives | AQA GCSE Business

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Planning a new business (gcse), starting a business: contents of a startup business plan (gcse), how to start an airline.

1st March 2021

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1.3 – Enterprise, Business Growth and Size

Entrepreneurship.

An entrepreneur is a person who organizes, operates and takes risks for a new business venture . The entrepreneur brings together the various factors of production to produce goods or services. Check below to see whether you have what it takes to be a successful entrepreneur!

Self-confident
Independent
Effective communicator
Hard working

Business plan

A business plan is a document containing the business objectives and important details about the operations, finance and owners of the new business.

It provides a complete description of a business and its plans for the first few years; explains what the business does, who will buy the product or service and why; provides financial forecasts demonstrating overall viability; indicates the finance available and explains the financial requirements to start and operate the business.

Some of the content of a regular business plan are:

Executive summary: brief summary of the key features of the business and the business plan
The owner: educational background and what any previous experience in doing previously
The business: name and address of the business and detailed description of the product or service being produced and sold; how and where it will be produced, who is likely to buy it, and in what quantities
The market: describe the market research that has been carried out, what it has revealed and details of prospective customers and competitors
Advertising and promotion: how the business will be advertised to potential customers and details of estimated costs of marketing
Premises and equipment: details of planning regulations, costs of premises and the need for equipment and buildings
Business organisation: whether the enterprise will take the form of sole trader, partnership, company or cooperative
Costs: indication of the cost of producing the product or service, the prices it proposes to charge for the products
Finance: how much of the capital will come from savings and how much will come from borrowings
Cash flow: forecast income (revenue) and outgoings (expenditures) over the first year
Expansion: brief explanation of future plans

Making a business plan before actually starting the business can be very helpful. By documenting the various details about the business, the owners will find it much easier to run it. There is a lesser chance of losing sight of the mission and vision of the business as the objectives have been written down. Moreover, having the objectives of the business set down clearly will help motivate the employees . A new entrepreneur will find it easier to get a loan or overdraft from the bank if they have a business plan.

Government support for business startups

According to startup.com , “a startup is a company typically in the early stages of its development. These entrepreneurial ventures are typically started by 1-3 founders who focus on capitalizing upon a perceived market demand by developing a viable product, service, or platform”.

Why do governments want to help new start-ups?

They provide employment to a lot of people
They contribute to the growth of the economy
They can also, if they grow to be successful, contribute to the exports of the country
Start-ups often introduce fresh ideas and technologies into business and industry

How do governments support businesses?

Organise advice: provide business advice to potential entrepreneurs, giving them information useful in staring a venture, including legal and bureaucratic ones
Provide low cost premises: provide land at low cost or low rent for new firms
Provide loans at low interest rates
Give grants for capital: provide financial aid to new firms for investment
Give grants for training: provide financial aid for workforce training
Give tax breaks/ holidays: high taxes are a disincentive for new firms to set up. Governments can thus withdraw or lower taxation for new firms for a certain period of time

Measuring business size

Businesses come in many sizes. They can be owned by a single individual or have up to 50 shareholders. They can employ thousands of workers or have a mere handful. But how can we classify a business as big or small?

Business size can be measured in the following ways:

Number of employees: larger firms have larger workforce employed
Value of output: larger firms are likely to produce more than smaller ones
Value of capital employed: larger businesses are likely to employ much more capital than smaller ones

However, these methods have their limitations and are not always accurate. Example: When using the ‘number of employees’ method to compare business size is not accurate as a capital intensive firm ( one that employs a large amount of capital equipment) can produce large output by employing very little labour (workers). Similarly, value of capital employed is not a reliable measure when comparing a capital-intensive firm with a labour-intensive firm. Output value is also unreliable because some different types of products are valued differently, and the size of the firm doesn’t depend on this.

Business growth

Businesses want to grow because growth helps reduce their average costs in the long-run, help develop increased market share, and helps them produce and sell to them to new markets.

There are two ways in which a business can grow- internally and externally.

Internal growth

This occurs when a business expands its existing operations . For example, when a fast food chain opens a new branch in another country. This is a slow means of growth but easier to manage than external growth.

External growth

This is when a business takes over or merges with another business . It is sometimes called integration as one firm is ‘integrated’ into the other.

A merger is when the owner of two businesses agree to join their firms together to make one business.

A takeover occurs when one business buys out the owners of another business , which then becomes a part of the ‘predator’ business.

External growth can largely be classified into three types:

Reduces number of competitors in the market, since two firms become one.
Opportunities of economies of scale .
Merging will allow the businesses to have a bigger share of the total market.
Merger gives assured supply of essential components.
The profit margin of the supplying firm is now absorbed by the expanded firm.
The supplying firm can be prevented from supplying to competitors.
Merger gives assured outlet for their product.
The profit margin of the retailer is now absorbed by the expanded firm.
The retailer can be prevented from selling the goods of competitors.
Conglomerate integration allows businesses to have activities in more than one country. This allows the firms to spread its risks.
There could be a transfer of ideas between the two businesses even though they are in different industries. This transfer o ideas could help improve the quality and demand for the two products.

Drawbacks of growth

Difficult to control staff: as a business grows, the business organisation in terms of departments and divisions will grow, along with the number of employees, making it harder to control, co-ordinate and communicate with everyone
Lack of funds: growth requires a lot of capital.
Lack of expertise: growth is a long and difficult process that will require people with expertise in the field to manage and coordinate activities
Diseconomies of scale: this is the term used to describe how average costs of a firm tends to increase as it grows beyond a point, reducing profitability. This is explored more deeply in a later section .

Why businesses stay small

Not all businesses grow.Some stay small, employ a handful of workers and have little output. Here are the reasons why.

Type of industry : some firms remain small due to the industry they operate in. Examples of these are hairdressers, car repairs, catering, etc, which give personal services and therefore cannot grow.
Market size : if the firm operates in areas where the total number of customers is small, such as in rural areas, there is no need for the firm to grow and thus stays small.
Owners’ objectives : not all owners want to increase the size of their firms and profits. Some of them prefer keeping their businesses small and having a personal contact with all of their employees and customers, having flexibility in controlling and running the business, having more control over decision-making , and to keep it less stressful .

Why businesses fail

Not all businesses are successful. The main reasons why they fail are:

Poor management : this is a common cause of business failure for new firms. The main reason is lack of experience and planning which could lead to bad decision making. New entrepreneurs could make mistakes when choosing the location of the firm, the raw materials to be used for production, etc, all resulting in failure
Over-expansion : this could lead to diseconomies of scale and greatly increase costs, if a firms expands too quickly or over their optimum level
Failure to plan for change : the demands of customers keep changing with change in tastes and fashion. Due to this, firms must always be ready to change their products to meet the demand of their customers . Failure to do so could result in losing customers and loss. They also won’t be ready to quickly keep up with changes the competitors are making , and changes in laws and regulations
Poor financial management : if the owner of the firm does not manage his finances properly, it could result in cash shortages. This will mean that the employees cannot be paid and enough goods cannot be produced. Poor cash flow can therefore also cause businesses to fail

Why new businesses are at a greater risk of failure

Less experience: a lack of experience in the market or in business gets a lot of firms easily pushed out of the market
New to the market: they may still not understand the nuances and trends of the market, that existing competitors will have mastered
Don’t a lot of sales yet: only by increasing sales, can new firms grow and find their foothold in the market. At a stage when they’re not selling much, they are at a greater risk of failing
Don’t have a lot of money to support the business yet: financial issues can quickly get the better of new firms if they aren’t very careful with their cash flows. It is only after they make considerable sales and start making a profit, can they reinvest in the business and support it

Notes submitted by Lintha

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18 thoughts on “ 1.3 – Enterprise, Business Growth and Size ”

I am SOOO surprised to use this website. My teacher lit uses this to make notes but he made it more complex by using those high fi words. But this, OMG it’s so ez when I read these notes it was so much easier than I thought I just love this THANKS SOOO MUCHHH!!!!!!

Like Liked by 1 person

thid is bestest nots for bussines studys thx

Wonderful information 🥰🥰 It really helped me a lot thanks for de info

What about value of sales ( for ways if measuring a business) ? Because the IGCSE textbook I use does talk about that..

Yes. You can add that as a measure of evaluating business size, but it too runs into the same limitations as the other measures.

okay, thank you !!

the absolute best

Like Liked by 2 people

HEy I would like if anyone here would be able to help me with business because im facing hella problems

you still have problems

yes i do too lol

If you are facing problem in Business Studies (IGCSE/O Levels), Feel free to contact me. My name is Afzal Shad and I have a website with same name. (Google: Sir Afzal Shad) and you will get my website to contact me.

Hope Admin of website won’t mind.

this one is really useful💓love this one

Thank you so much 🙂

Quite understandable 👌👌

exactly.. profit is NOT a measure of business size

Hey. In the Business Studies syllabus, it was mentioned that, and I quote “profit is not a method of measuring business size”, but it was mentioned here. I just wanted to point that out because I think that is an error that was published here. Thanks.

Well, Profit can also be a measure of business size but not alone. Most of the times we use a combination of sizes. For example, the Covered Area, the Capital Employed or even the Number of Employees can not be the perfect measure, if they are used alone.

We normally take combinations of Business Size to measure them. Using one won’t be an accurate measure.

Afzal Shad IGCSE /A Levels Business Teacher Google me: (Sir Afzal Shad)

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Business aims and objectives - Edexcel What are aims and objectives in business?

All businesses create aims and objectives to give them goals or targets to achieve. Businesses usually have a mixture of financial and non-financial objectives.

Part of Business Putting a business idea into practice

What are aims and objectives in business?

All businesses have aims and objectives. These give a business direction and provide a purpose for what the business does each day. A business aim is the overall target or goal of the business, whereas business objectives are the steps a business needs to take to meet its overall aims. A business may have several different objectives that will help it to meet its aim.

An example of a business aim is ‘to make £120,000 profit close profits The amount of money made after all expenses have been paid. ’. An example of a business objective is ‘to make £10,000 profit each month for the next year’.

Business aims and objectives fall into two main categories: financial and non-financial.

Business objectives are often created using the SMART acronym: