A Level Business (9609) Notes

Chapter 1 Enterprise
1.1 The Nature of Business Activity
Purpose of Business Activity
 Aim: Satisfy people’s needs using resources.
Page | 1  Businesses operate in a changing world, but purpose remains the same → add value to resources +
meet needs.
 Without business activity → people would be self-sufficient (make/grow everything themselves).
 Business activity allows a higher standard of living.

What Businesses Do
 Identify needs of customers.
 Purchase resources to allow production.
 Produce goods & services to satisfy needs (usually to make profit).
👉 Customers = Consumers (buying consumer goods & consumer services).

The Factors of Production Needed by the Business

1. Land → natural resources (land, coal, oil, timber).
2. Labour → workforce (manual + skilled workers).
3. Capital → finance + man-made resources (machines, computers, factories, offices, vehicles).
4. Enterprise → entrepreneurs who:
o Take risks
o Organise & combine factors
o Make decisions & coordinate production
Other Business Needs
 Beyond factors of production, businesses also require organisation, information, finance, energy,
workers, and markets to operate successfully.

The Concept of Adding Value

Definition
 Adding Value = Selling price of product – Cost of bought-in materials.
 A business adds value if customers pay more than material costs.
 Essential for survival → covers other costs (labour, rent, etc.) + provides return to investors.
Key Points
 Added value ≠ Profit (other expenses must still be paid).
 More added value (without higher costs) → higher profit.
Examples
1. Jewelers Shop
o Attractive shop design, packaging, trained staff.
o Increases price above extra costs → adds value.
2. Sweet Manufacturer
o Strong advertising + branding.
o Attractive packaging.
o Sold in popular shops (not just vending machines).
o Creates brand recognition → higher prices.
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Economic Activity and the Problem of Choice

The Economic Problem
 World has wealth + scarcity at the same time.
 Poor → cannot meet basic needs (food, water, shelter).
Page | 2  Rich → still cannot satisfy all wants (luxuries).
 Reason: Insufficient goods / resources to meet everyone’s needs & wants.
Purpose of Economic Activity
 Aim: Provide for as many wants as possible.
 Still → unsatisfied wants remain.
Scarcity & Choice
 Limited resources = must choose what to satisfy and what to give up.
 Rational choice → select what gives greatest benefit/value.
 Opportunity cost exists (next best alternative forgone).
Who Faces the Problem of Choice?
 Not only consumers →
o Governments (how to spend taxes).
o Businesses (what to produce).
o Workers (which job to take).
o Charities (where to allocate funds).

Opportunity Cost
Definition
 When choosing one option, the next best alternative forgone = opportunity cost.
Key Points
 Exists because resources are limited → not everything can be afforded.
 Applies to all economic decision-makers:
o Consumers → buying one product means giving up another.
o Businesses → choosing one investment/project means sacrificing another.
o Governments → spending on one sector reduces funds for another.
Examples
 Consumer: Buy a smartphone → cannot buy trainers (trainers = opportunity cost).
 Government: Build a fighter plane → cannot build a hospital (hospital = opportunity cost).

The Dynamic Business Environment

Key Idea
 Business environment = dynamic (constantly changing).
 Setting up a business = risky.
 Inflexible business plans struggle to adapt → failure risk increases.
Main Types of Change
1. New competitors entering the market.
2. Legal changes → e.g., new safety regulations, restrictions on who can buy products.
3. Economic changes → customers may have less money to spend.
4. Technological changes → products/processes can become outdated.
Impact
 Constant change = uncertainty + risk.
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 Explains why some businesses succeed, others fail.

Why Do Some Businesses Succeed?
Key Reasons
1. Good understanding of customer needs → helps achieve sales targets.
2. Efficient management of operations → controls costs.
Page | 3 3. Flexible decision-making → adapts to change, seizes new opportunities.
4. Adequate & appropriate finance → avoids cash shortages, supports expansion.

Why Do Some Businesses Fail?

1. Poor Record-Keeping
 Many small firms ignore proper records.
 Problems arise with:
o Tracking deliveries.
o Confirming customer payments.
o Monitoring employee hours.
 Solution: Use computer systems + keep paper back-ups.
2. Lack of Cash (Working Capital Problems)
 Biggest cause of failure (especially in the first year).
 Finance needed for:
o Daily operations.
o Holding inventory.
o Offering credit to customers.
 Without cash → can’t buy supplies, pay bills, or serve customers.
Ways to reduce cash flow problems:
 Make & update a cash flow forecast.
 Inject sufficient start-up capital.
 Build good relations with banks (overdraft facility).
 Apply effective credit control (ensure customers pay on time).
3. Poor Management Skills
 Many entrepreneurs lack:
o Leadership & decision-making.
o Financial management.
o Planning & communication.
o Marketing & sales.
 Example: Great chef opens restaurant but fails due to weak management.
Solutions:
 Gain experience before starting.
 Seek advice/training from support organisations.
 Employ experienced managers (though costly for new businesses).

Local, National and International Businesses

Local Businesses
 Operate in small, specific areas of a country.
 Owners often do not aim to expand nationally.
 Examples:
o Small building/carpentry firms.
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o Single-branch shops, Hairdressers, Child-minding services.

National Businesses
 Operate across the whole country.
 No operations in other countries.
 Examples:
Page | 4 o Large car-retailing firms.
o Retail chains with branches only in one country.
o National banks.
International Businesses
 Sell products in more than one country.
 Methods: foreign agents, online selling.
Multinational Businesses
 Have operations (production or sales) in more than one country.
 Go beyond selling → established bases abroad.

1.2 The Role of Entrepreneurs and Intrapreneurs

Entrepreneur’s Role in Starting a Business
 Have an idea for a new business.
 Create a business plan.
 Invest own savings/capital.
 Manage the business.
 Accept risks of failure.

Qualities of Successful Entrepreneurs & Intrapreneurs

1. Innovation → Identify market gaps, offer new ideas, attract customers in unique ways.
2. Commitment & Self-Motivation → Hard work, energy, ambition, long working hours.
3. Multi-Skilled → Ability to:
o Make/provide the product/service.
o Promote & sell.
o Keep accounts & handle money.
4. Leadership Skills → Motivate and encourage workers by leading through example.
5. Self-Confidence & Resilience → Strong belief, ability to recover from setbacks.
6. Risk-Taking → Willing to invest savings and take risks to achieve success.

Barriers to Entrepreneurship
1. Lack of a Business Opportunity
 Hard to identify successful ideas.
 Sources of ideas:
o Own skills/hobbies (e.g., dressmaking, car repair).
o Previous work experience.
o Franchising conferences/exhibitions.
o Small-budget market research (e.g., using internet business directories).
 Common small-scale industries: fishing, gardening, jewellery/crafts, building trades, hairdressing,
computer repairs, cafés/restaurants, childminding.
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2. Obtaining Sufficient Capital (Finance)

 Main difficulty for most entrepreneurs.
 Causes:
o Limited personal savings.
Page | 5 o Lack of awareness of financial support/grants.
o No trading record for banks.
o Poor business plan (fails to convince investors).
3. Cost of Good Locations
 Expensive premises raise risks → home-based start-ups common.
 Drawbacks of home-based business:
o May be far from biggest market.
o Lacks status (compared to offices/shops).
o Family tensions.
o Hard to separate private/work life.
 Location depends on business type → e.g., web designer (home possible), hairdresser (needs customer-
accessible premises).
4. Competition
 New firms face strong competition from established businesses with more resources & market
knowledge.
 Small firms may need to compete through:
o Unique products.
o Better customer service.
5. Lack of a Customer Base
 New firms must quickly build customers & loyalty.
 Survival depends on repeat purchases.
 Ways to attract/retain customers:
o Personalised service.
o Knowledgeable pre-/after-sales help.
o Flexibility in meeting special requests.

Business Risk vs. Uncertainty

Business Risk
 Definition: Chance of failure that can be measured/calculated.
 Example: 10 clothing shops open, 3 fail → risk = 30%.
 Can be reduced by:
o Studying reasons for failures.
o Careful business planning.
Business Uncertainty
 Definition: Events those are unforeseen, unpredictable, and unmeasurable.
 Example: COVID-19 (2020) → fall in consumer spending → many small firms forced to close.
 Cannot be fully prepared for.

Role of Enterprise in a Country’s Economic Development

1. Employment Creation
o Entrepreneurs employ themselves + others.
 A Level Business (9609) Notes

o Reduces unemployment.
o Creates more jobs in suppliers’ businesses.
2. Economic Growth
o New businesses → higher output = ↑ GDP.
o Improves living standards.
Page | 6 o Increases government tax revenue.
3. Business Survival and Growth
o Some start-ups survive and expand.
o Replace declining industries.
o Example: Trinidad & Tobago → sugar industry declined, tourism industry grew (supported by
small guesthouse entrepreneurs).
4. Innovation and Technological Change
o Start-ups often bring new ideas/creativity.
o Stimulates other firms → increases competitiveness.
o Many new firms in technology/IT sector.
5. Exports
o Some firms expand to international markets.
o Increases national exports → improves competitiveness.
6. Personal Development
o Running a business develops skills.
o Creates self-actualisation (personal achievement).
o Inspires others to start businesses.
7. Increased Social Cohesion
o Jobs reduce unemployment-related problems.
o Expanding small business sector = greater social stability.

The Role of Intrapreneurship

Definition
 Intrapreneurship = Encouraging employees within a business to take risks, show initiative, and create
new opportunities (like entrepreneurs).
 Intrapreneur = Employee with entrepreneurial qualities, but working inside an existing business.
Why Intrapreneurship Matters
 Businesses must adapt to rapid economic & technological change.
 Prevents dynamic employees from leaving to start their own ventures.
 Keeps businesses innovative and competitive.
Entrepreneur vs. Intrapreneur
Aspect Entrepreneur (Start-up) Intrapreneur (Existing Business)
Main Activity Starts new business Develops innovative product/project inside a business
Risk Taken by entrepreneur Taken by business
Rewards To entrepreneur To business

Benefits of Intrapreneurship
1. Creativity & Innovation → new products, new sales methods.
2. New Ways of Working → problem-solving beyond traditional methods.
3. Drives Change → creates excitement, makes change acceptable.
4. Competitive Advantage → more innovative products.
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5. Retains Talent → encourages innovators to stay: “You don’t have to leave to be an entrepreneur.”
1.3 Purpose and Key Elements of Business Plans
Key Elements of a Business Plan
1. Executive Summary → Overview of the business & strategies.
2. Business Opportunity → Entrepreneur’s skills, product details, target market.
Page | 7 3. Marketing & Sales Strategy → Why customers will buy + how sales will be made.
4. Management Team & Personnel → Entrepreneur’s experience + recruitment plans.
5. Operations → Premises, production facilities, IT systems.
6. Financial Forecasts → Projections of sales, profit & cash flow (≥ 1 year ahead).

Benefits of Business Plans

 Main purpose = obtain finance for start-up.
 Provides evidence for investors/banks.
 Increases chance of finance approval.
 Forces owner to think seriously about strengths/weaknesses.
 Gives managers a clear plan of action in early months/years.

Limitations of Business Plans

 Does not guarantee success (forecasts may be wrong).
 Could create false sense of certainty → over-reliance.
 Weak/incomplete plan = delays in finance approval.
 May cause inflexibility → rejecting new opportunities not in the plan.
 Best plans allow for flexibility in a dynamic business environment.
 A Level Business (9609) Notes

Paper 1: Exam Style Questions

Short Answer Questions
Q1. Define the term ‘adding value’. [2]
Adding value is the difference between the selling price of a product and the cost of the materials bought in to
Page |make
8 it. For example, if raw fruit costing $2 is used to make a fruit salad sold for $5, the added value is $3. (AO1
– Knowledge, AO2 – Application)

Q2. Define the term ‘entrepreneur’. [2]

An entrepreneur is a person who takes the risk of setting up and managing a business. They organise resources
to produce goods and services and aim to make a profit while accepting the possibility of failure. (AO1 –
Knowledge)

Q3. Analyse one characteristic of successful entrepreneurs. [5]

A key characteristic of a successful entrepreneur is innovation. Entrepreneurs must be able to identify gaps in
the market and create products or services that attract customers in new ways. This allows them to stand out
from competitors and often charge higher prices. For example, a bakery that introduces gluten-free cakes could
attract health-conscious customers and build a loyal customer base. Innovation therefore helps an entrepreneur
to survive and grow in competitive markets. (AO1 – Knowledge, AO2 – Application, AO3 – Analysis)

Q4. Explain one barrier faced by entrepreneurs, apart from limited finance. [3]
One common barrier faced by entrepreneurs is competition from established businesses. New firms often
struggle to attract customers because existing businesses have greater brand loyalty, lower unit costs, and more
resources. This can make survival difficult for start-ups unless they offer something unique. (AO1 – Knowledge,
AO2 – Application)

Q5. Explain one example of opportunity cost for an individual planning to become an entrepreneur. [3]
Opportunity cost refers to the next best alternative forgone. For an individual planning to become an
entrepreneur, this might be leaving a secure job. The salary they would have earned becomes the opportunity
cost of starting their own business. (AO1 – Knowledge, AO2 – Application)

Q6. Analyse one way a country is likely to benefit from the expansion of its business enterprises. [5]
One benefit of expanding business enterprises is job creation. As new businesses are established and existing
ones grow, they employ more workers, reducing unemployment. This raises household incomes, which
improves living standards and increases spending in the economy. In addition, the government benefits from
higher tax revenue, which can be used to improve public services. (AO1 – Knowledge, AO3 – Analysis, AO2 –
Application)

Q7. Explain one role of an intrapreneur in an existing business. [3]

An intrapreneur’s role is to innovate and take risks within an established business. For example, an intrapreneur
in a technology company might develop a new app or service, which helps the business stay competitive in a
fast-changing industry. (AO1 – Knowledge, AO2 – Application)

Q8. Analyse one benefit of a detailed business plan to an entrepreneur. [5]

A detailed business plan provides a clear outline of how the business will operate and grow. One important
benefit is that it makes it easier to obtain finance. Banks and investors are more likely to provide funding if they
see evidence of planning and reduced risk. Without a business plan, lenders may be unwilling to provide capital,
 A Level Business (9609) Notes

so planning increases the chances of gaining financial support. (AO1 – Knowledge, AO3 – Analysis, AO2 –
Application)

Q9. Explain one limitation of business plans. [3]

One limitation of business plans is that they rely on forecasts and assumptions which may not be accurate. For
Page |example,
9 unexpected economic changes could reduce customer demand, making sales projections in the plan
unrealistic. (AO1 – Knowledge, AO2 – Application)

Q10. Explain one reason why a new hairdressing business will need a factor of production of your choice. [3]
A new hairdressing business will require labour as a key factor of production. Skilled hairdressers are essential
for providing the service to customers, as without trained staff the business would not be able to operate
successfully. (AO1 – Knowledge, AO2 – Application)

Q11. Explain one need that a new business must fulfil if it is to be successful. [3]
A new business must ensure there is sufficient customer demand for its product or service. Without enough
sales, the business will not generate the revenue needed to survive and cover costs, regardless of how well it is
managed. (AO1 – Knowledge, AO2 – Application)

Q12. Analyse one way a supermarket could add value to the food and other goods it buys in. [5]
One way a supermarket could add value is through branding and attractive packaging. By presenting goods in
appealing ways and creating their own brand image, supermarkets can make products stand out and build
customer loyalty. This allows them to charge higher prices compared to unbranded alternatives, which increases
revenue and profitability. (AO1 – Knowledge, AO2 – Application, AO3 – Analysis)

Q13. Explain one reason why there are so many new business enterprises providing consumer services. [3]
There are many new enterprises in consumer services because they often require low start-up costs compared
to manufacturing businesses. For example, services such as hairdressing or childcare can be set up with limited
capital, making them easier for entrepreneurs to enter. (AO1 – Knowledge, AO2 – Application)

Q14. Explain one way in which an entrepreneur could overcome the barrier of having no savings to invest. [3]
An entrepreneur without savings could seek external finance such as a bank loan or investment from venture
capitalists. By presenting a strong business plan, they can convince lenders of the potential success of the
business and secure the necessary funds. (AO1 – Knowledge, AO2 – Application)

Q15. Analyse one benefit of entrepreneurship to your country’s economy. [5]

Entrepreneurship benefits the economy by driving innovation and competitiveness. New businesses introduce
fresh ideas and improve efficiency, which can make industries more competitive internationally. This leads to
higher GDP growth, greater employment, and increased tax revenue for the government. For example, the
growth of IT start-ups has boosted both exports and technological skills in many developing economies. (AO1 –
Knowledge, AO2 – Application, AO3 – Analysis, AO4 – Evaluation)