This version keeps the chapter exam-focused and balanced. It includes the important knowledge students need without making the notes unnecessarily long. The chapter covers entrepreneurship, business plans, government support, business size, growth and business failure.
This topic explains what entrepreneurs do, why people become entrepreneurs, the risks involved, and the characteristics needed to start a successful business.
Students should know these five important characteristics:
Entrepreneurs may need to work long hours, especially when the business is new.
Starting a business involves uncertainty because there is no guarantee customers will buy the product.
New ideas can help a business stand out from competitors.
Confidence is important when dealing with customers, employees, banks and investors.
Entrepreneurs need to communicate clearly with customers, lenders, suppliers and employees.
This topic explains how business plans reduce risk and how governments may help new businesses start and survive.
Includes the business idea and its objectives.
Explains what the business intends to sell.
Includes information about:
Explains how the business will be managed and the workers needed.
Includes:
Students mainly need to remember two reasons:
Banks and other lenders can use the business plan to decide whether the business is likely to succeed and repay a loan.
Preparing the plan forces the entrepreneur to think about customers, costs, finance, location and other important issues before starting the business.
Governments may support entrepreneurs because new businesses can:
Governments may provide:
This topic explains how business size can be measured and why many businesses want to expand.
There is no single perfect measure of business size. Businesses can be measured in four main ways.
The number of people working for the business.
The total value of goods or services produced by the business.
The total value of goods or services sold by the business.
The total value of capital used in the business.
Businesses may want to expand because growth can lead to:
A larger business may sell more products.
Large businesses may benefit from economies of scale.
A larger market share can give the business more influence over suppliers and customers.
Owners and managers of larger businesses may gain greater prestige and possibly higher salaries.
Businesses can grow in two main ways.
Internal growth occurs when a business expands its existing operations.
Internal growth is normally slower but may be easier to manage.
External growth occurs when a business grows by merging with or taking over another business.
This is also called integration.
A merger occurs when the owners of two businesses agree to join together to form one business.
A takeover occurs when one business buys another business.
This topic explains the different ways businesses can join together: horizontal, vertical and conglomerate integration.
A car manufacturer takes over another car manufacturer.
There are two types.
The business joins with a supplier or a business at an earlier stage of production.
A car manufacturer takes over a business supplying car parts.
The business joins with another business at a later stage of production, closer to the final customer.
A car manufacturer takes over a car dealership.
It is also known as diversification.
| Type | Meaning |
|---|---|
| Horizontal | Same industry, same stage of production |
| Backward vertical | Same industry, earlier stage of production |
| Forward vertical | Same industry, later stage of production |
| Conglomerate | Completely different industries |
This topic explains why growth can create problems, why some businesses stay small, and why some businesses fail.
Students should know these three main problems:
As the business becomes larger, managers may find it harder to control all parts of the organisation.
Messages may take longer to reach employees and misunderstandings may occur.
Expansion can be expensive and the business may become short of finance.
There are three main reasons.
Some businesses provide personal or specialised services, such as hairdressers or plumbers, and do not need to become large.
There may only be a limited number of customers for the product.
The owner may prefer to keep control of the business and avoid the stress of managing a much larger organisation.
Important causes include:
Poor decisions may be made because managers lack experience.
The business may fail to react to:
A business may run out of cash and be unable to pay workers, suppliers or other expenses.
Growing too quickly can create financial and management problems.
New businesses are generally at greater risk because they may have:
Use this topic to memorise key definitions and check exactly what students must be able to do in the examination.
| Term | Meaning |
|---|---|
| Entrepreneur | A person who organises, operates and takes the risk of a new business venture |
| Business plan | A document containing business objectives and important information about a new business |
| Capital employed | Total value of capital used in a business |
| Internal growth | Expansion of a business's existing operations |
| External growth | Growth through a merger or takeover |
| Merger | Two businesses agree to join together |
| Takeover | One business buys another business |
| Horizontal integration | Businesses in the same industry and same stage of production join |
| Vertical integration | Businesses in the same industry but different stages of production join |
| Conglomerate integration | Businesses in completely different industries join |
| Diversification | Expansion into different industries |
Students should be able to: