Business

Studies
Unit 1
Revision
Booklet
Starting a
business
Lubna Sana Amir
Enterprise
The process by which new businesses are formed in order to
produce goods/services.

Entrepreneur
Someone who starts and runs a business and has responsibility
for the risks involved

Roles
- Has to be able to manage the factors of production
which are: land or natural resources, labour, capital
and enterprise
- Able to make decisions promptly
- Able to use skills to produce a successful and profitable
business
- Able to provide finance for the business

Characteristics
- Confident to present themselves as a strong business
person
- Optimistic, driven and keen to succeed
- Creative to be able to explore ideas
- Being able to take risks
- Strong peoples person so have to have good
communication skills
- Strong work ethics to be able to work alongside others
or employ people

Opportunity cost
The real cost of an action measured in terms of the next best
alternative forgone

There will be an opportunity cost for the entrepreneur

setting up the business. The entrepreneur may have to give
something up in order to acquire something else, such as
wages given up from previous employment in order to begin
his/her own business.
Government support

The government over the last few decades have tended to

favour a laid back approach. This means that the
government do not interfere in the market place unless
businesses require help. This is especially due to market
failure.

Market failure – failure of the market system to produce a

desirable efficient result.

Small firms have benefits but at the same time face major
problems. Small firms for example:
- Provide employment and reduce employment
- Create wealth
- Have a greater tendency to innovate
- Increase competition > greater choice > diversity
- Occupy a neglected niche in the market
- Help to counter regional decline

Entrepreneurs face many problems such as:

- Obtaining finance
- Premises
- Training employees
- Coping with laws and regulations
- Finding or afford assistance
- Competition from existing firms

The government’s main objective has been to:

- Encourage start ups
- Reduce the failure rate of new, small businesses
- Prevent discrimination against female entrepreneurs
and those from ethnic minorities
The government has introduced measures for start-ups
and support for growing businesses by:
 Offering lower taxes
 Reducing the burden on enterprises
 Supporting new business start-ups through Business
Link
 Improving the support for small/new businesses
 Increased funding to schools to create awareness of
business opportunities
 Encouraging start-ups in economically poor regions of
the UK
 Introducing legislation to promote competition
 Funding projects to raise awareness of enterprise
 Encouraging unemployed people to move into self-
employment e.g. Avon
 Providing financial support for voluntary and not-for-
profit organisations e.g. charity work
 Providing government grants

Government grants are always awarded for a specific

purpose/projected that have been proposed not for those
that have started. There are terms and conditions that apply
to all grants and if they aren’t followed the grant has to be
returned. Generally you do not have to repay grants or
interest on them as long as you don’t break the conditions.
Grants however require you to match the funds that you are
given, e.g. the grant covers some of the money needed while
you supply the rest. This money can be obtained from
owners, retained profits, loan, or investor.
The main groups who award grants are:
- The government
- The European Union
- Local authorities/councils/agencies
- Business Links
How to raise finance

There are many sources of finance available to start

businesses.

Ordinary share capital – shares that represent ownership of

a company
If you hold one share worth £1 in a multi-billion company
then you are a part owner. Ordinary shares will pay a
dividend and give voting rights.
Dividend – a share of the profits
Voting rights – one vote per share

Small businesses are unlikely to raise money on the London

Stock exchange. Instead they will rise money from local
sources e.g. family/friends or formal equity of funding
finance. This has three forms:
 Business angel investors: wealthy individuals that
are looking to invest in an opportunity where they
provide funding and expertise knowledge in return
for a share in the business
 Venture capitalists: firms that provide investment
for small businesses that they think will progress
well
 Alternative stock markets: providing new
investments for businesses but its very unlikely for a
new businesses to start here

Venture capital can also come in private equity finance.

The venture capitalists will invest large amounts of money
in a business in return for share of the company. They will
look for a high rate of return in a certain time period and
will only agree to invest if the business has a strong business
plan, sound management and a proven track record making
it difficult for start up firms.
Loan capital – this is where a lender provides money to a
borrower and the borrower agrees to repay the money with
interest over a period of time. This comes in two forms:
1) Bank Loans: these are usually for a specific period of
time and carry a fixed rate e.g. 10% of the sum on a
yearly basis for over 5 years
2) Bank Overdrafts: this allows firms to borrow money
and go overdrawn from their bank account

BANK LOANS
Advantages Disadvantages
- Quick and easy to - Interest must be paid
access - Has to provide
- Fixed interest rates collateral security
making it easier for against its assets
firms to budget - Often more expensive
- Improved cash flow than other forms of
- Borrower retains finance
ownership of the
company

BANK OVERDRAFTS
Advantages Disadvantages
- Only borrowed when - Bank can stop it at any
required time
- Flexible - Only available from
- Only pay for money current account
borrowed - Interest payments tend
- Quick and easy to to be variable making it
arrange hard to budget
- No charges for paying - Banks may secure the
off the overdraft overdraft against the
business assets
Sources of business ideas

There is no point creating a product/service unless there

will be a customer base

Gap in the market but is there a market in the gap?

Good business ideas are able to:

- Solve a problem
- Offer a better and cheaper way
- Be simple and practicable
- Be delivered quickly
- Have a clear focus
- Predict trends
- Exploit a gap in the market
- Bring in a successful business from another area
(copying another idea)
- Spot a new market (thinking ahead)

Popular sources of business ideas:

1) Business experience:
- Good way of getting insights on what works best
- Having a more realistic business plan
- Requiring less need for market research

2) Personal experience:
- Day to day activities, interests and hobbies
- Bad experiences

3) Observations:
- Analyse the market and improving on what is already
there
- Look for poor customer service
The decision in the business idea may be as a result from an
unmet need in the market that is a gap.

Knowing the product/service:

- The entrepreneur will have a good knowledge of the
product
- They will have a passion in the product so they will be
encouraged to do well
- They will have good contacts in the market
However,
- They can be room for a competitor
- The entrepreneur may have knowledge but lack of
other skills
- Their passion for the product may not be shared by
anyone else so the business will not progress

Spotting a gap in the market:

- Entrepreneur is basing ideas on the customers needs
and not their own which might improve chances of
success
- More likely to enjoy being first in the market
- Little or no competition in the early stages
However,
- Lack of knowledge in the product/service which makes
it more likely to make mistakes
- Competition may enter quickly and attain market share
- The gap may not be real as someone may have tried it
before
 Franchise – a business marriage between an existing
proven business and a new comer.
The franchisor is the business.
The franchisee is the newcomer.

The franchisor provides:

- Training to start the business
- Equipment/materials
- A brand name with national advertising

The franchisor gains:

- Money from the newcomer when they set up
- A percentage of the sales known as a royalty payment

1) How is finance provided?

The franchisee uses their own money from savings or a
loan.

2) Are they any legal requirements?

A copy of license is needed so trading can begin

3) Examples of franchises?
McDonalds, Subway, Pizza hut and Clarks.
Franchisee
Advantages Disadvantages
- Gain an established - Pay a % of sales back in
brand name royalties
- Help and guidance - Work within strict
- Fixtures included guidelines
- Never your own boss

Franchisor
Advantages Disadvantages
- Spreads the name of - Could gain a bad
company with little reputation through
expense poor franchisee
 Protecting business ideas

Copyright – legal protection against copying for authors,

composers and artists

You can copyright: literature, drama, music, and art,

layouts used to publish work for a book, recordings, and
broadcasts.

Copyright is able to protect your work automatically

once an idea is fixed, therefore you don’t have to apply for
copyright. The copyright holder is able to charge a
royalty or license fee for anyone who attempts to copy
his or her work.

Trademark – a sign, logo, symbol, or word(s) displayed by

a company that distinguish its brand from its competitors

A trademark protects any sign/symbol that allows your

customers to tell you apart from your competitors. You
can register a name, logo, slogan, shape, colour or sound.
A trademark must be suitable for the goods and services
your business provides. If you have a registered
trademark you have to renew it every ten years

Advantages
- Provides an instant recognizable image
- Creates a USP
- Makes it easier to launch products
- May be possible to sell a popular trademark
 Patent – official document granting the holder the right to
be the only user or producer of a newly invented product or
process

A patent protects new inventions and covers how things

work. It gives the owner the right to stop others from
making, using, importing, and selling the invention
without permission. The invention must be new and
capable of being made or used in some kind of industry. If
you have a granted patent you must renew it every year
after the 5th year for up to 20yrs of protection.

Advantages Disadvantages
- Holder can sell the - Expensive and time
product without close consuming
competition for up to - Preventing other firms
20 years from using your patent
- Profits earned by may be expensive to
having a patent can be pay for legally
reinvested in
- Patent can be sold,
reinvested/further
developed
Sources of Finance

Internal sources of finance come from within the

business or from the owners in the form of:

Retained Profits (Owner’s savings) – the profit made by

the business and kept back for its own use

The main use of it is to purchase products/premises and

research and develop them into new products.

Advantages:
- Cheap source of finance as no interest is charged
- Accessible
- Does not have to be paid back
Disadvantages:
- The amount of profit available depends on how much
profit has been made in previous years so it is likely to
be a small amount
- By using money already in the business, the firm will
face an opportunity cost, so it cannot be used for
another purpose
- Could be risky as owner can lose their savings
Leasing – the right to use assets in return for a monthly
payment

This is the common method of finance for new fixed assets

e.g. lorries, cars, equipment and buildings

Advantages:
- Business isn’t responsible for any repairs for the assets
that are hired
- Allows the business to have access to up to date
equipment
- Monthly payments are made as the business doesn’t
pay for the business outright, which enables good cash
flow
Disadvantages:
- Leasing an asset can be expensive than purchasing one
- The business wont be able to get an upgrade on the
equipment without the permission of the leasing
company
External sources of finance come from outside the
organisation in the form of:

Bank Loan – fixed sums agreed between the borrower and

the bank, usually for a fixed period of time

This can be used to purchase new equipment and

machinery to help a business to start-up or develop.

Advantages:
- Repayments can be spread over a period of time which
enables owners to manage their cash outflows
- Owners don’t lose control of the business as the money
can be paid back over a period of time
- Interest payments can be fixed which helps a business
to produce a cash flow forecast to ensure that it won’t
have an impact on their business
- The business will own whatever has been bought at the
end of the loan period
Disadvantages:
- Repayments have to be made each month with interest
which can reduce profit
- Collateral security may be needed to secure the loan.
This means the bank has the right to seize the
businesses assets if the loan isn’t repaid
- If the interest rate isn’t fixed it can increase
Bank Overdraft – agreement with the bank where a business
is able to spend more than its bank balance

This is used to overcome a short-term shortage of funds.

Advantages:
- Flexible source of finance
- Quick and easy to arrange
- Can be paid back at any time as long as the business
doesn’t go over the agreed limit
Disadvantages:
- If the business goes over the limit the bank can stop the
overdraft
- Interest is charged

Venture capital – wealthy individuals/companies who

specialise in investing in risky companies that are unable to
raise finance from elsewhere

They help with risky business start-ups or for them to

expand.

Advantages:
- They will often lend the business money, guide and
support when the bank has refused
- Dividends will not need to be paid if losses incur in the
future
- Collateral security isn’t needed
Disadvantages:
- Become part owners and have some control over
making decisions
- Part owners receive a share of the profits (dividends)
Family and friends – personal sources of the owner

Advantages:
- May be a low interest rate
- Quick and easy to arrange
Disadvantages:
- Can cause problems within families

Government grant – finance obtained from the government

for a specific purpose

A government grant can be used for business start-ups for

training staff and purchasing new equipment.

Advantages:
- Doesn’t need to be repaid
Disadvantages:
- Have to go through procedures where many forms are
filled and this can be time consuming
 Transforming resources into goods/services

Inputs Transformation Outputs

process

The transformation process describes what happens

inside the business. This is where value is added to inputs to
create outputs.

Inputs – the elements that go into producing goods and

services:
- Land: All the natural and mineral resources that can be
used for production such as, coal, oil, gravel, and
livestock e.g. sheep’s, pigs and cows. It also includes the
sea and resources contained within it e.g. fish.
- Labour: The physical and mental effort involved in
production. It ranges from people providing personal
and commercial services e.g. accountants, window
cleaners to people providing manual effort in
producing goods, extracting materials or harvesting
crops
- Capital: Goods that are made in order to produce other
goods/services e.g. machinery, lorries, factories etc.
- Enterprise: Bringing together the other factors of
production to create goods and services. This is carried
out by entrepreneurs who earn profit that can be made
from converting inputs into outputs
Outputs – the finished products resulting from the
transformation process:
- Primary sector: Extraction of natural resources e.g.
mining, farming.
- Secondary sector: Production of finished goods and
components e.g. manufacturing, food processing.
- Tertiary sector: Providing services to consumers and
businesses e.g. retailing, personal beauticians.

Businesses can operate in more then one sector.

Example:
‘’Many farms in Britain also offer holiday accommodation
and produce processed foods such as cheese and ice-
cream from farm supplies’’
 Primary sector: Farming
 Secondary sector: ice-cream and cheese
 Tertiary sector: holiday accommodation

Adding value – the process of increasing the worth of

resources by modifying them

This is the difference between the price of the finished

product/service and the cost of the inputs in making it.

Calculation:
Sales revenue – Costs = Added value
1,000 units sold for £20 each equals £20,000 revenue
To make 1,000 units raw materials (£7,500), labour (£5,000)
and other costs (£2,500) equals to £15,000
£20,000 - £15,000 = £5,000
Ways to add value:
- Build a brand
- Deliver good customer service
- Add features to products to meet customers needs and
wants
- Operate efficiently

Advantages:
- Charging a higher price for good quality products in
return
- Create a point of difference against competitors
- Protecting against competitors offering similar
products but at lower prices
- Focuses business on its target market segment

Signs that a start-up business is already adding value to

their goods/services:
Strong gross profit margins:
- A strong signal
- Gross profit/Total sales
Repeat custom:
- Sign of satisfied customers
- Suggests customers believe that they are getting good
value for good money
Brand or name recognition:
- Popularity of product so people recommend it to each
other, increases customer base
Business plan – a document that sets out the goals of a new
or existing business and how they can be achieved, describing
the marketing strategy, operational issues and financial
implications

Basic business planning is needed:

- To set the objectives for the business
- To ensure the business can be viable
- To raise finance from third parties

Advantages Disadvantages
- Clarifies objectives and - Time consuming as the
helps entrepreneurs to business planning
consider their business process should be kept
idea from every simple and focused
perspective - Should be accurate and
- Enables the owners to realistic as many
know what needs to be business plans tend to
done in order to meet be overly optimistic
their objectives about their sales
- Persuades lenders to forecast and quite
invest into their unrealistic about when
business by showing payment can be
them how successful it expected
can be - Market conditions can
- Helps to monitor change
progress and show the
changes of the business
Conducting start-up market research

Market research – the collection of data relating to the

marketing and production of goods/services

Market research is needed to discover what your

customers want and matching products/services to what
customers need.

It can help small businesses grow by keeping you up with

current trends and your competitors businesses. It helps to
know the state of the market and how to improve your
position.
Primary research – involves the collection of data first hand
for a specific purpose

To collect primary data a business must carry out field

research that is:
- Face to face interviews: asking people on the
street/doorstep a series of questions
- Telephone interviews: asking shorter questions
- Online surveys: using email or the Internet to
question people and find the information required.
This is cheaper then face-to-face/telephone interviews
- Questionnaires: these can be sent in the post for
customer feedback
- Focus groups and consumer panels: this is when a
group of people meet with a facilitator who asks the
panel to examine a product and then ask detailed
questions. Often used when a business is looking to
introduce a new product/brand name.

Advantages Disadvantages
- Up to date information - Can be difficult to
- Specific for the purpose collect/time consuming
- Can be quick e.g. - Expensive to collect
telephone interviews - Can provide misleading
- Collects data which results if the sample
other businesses wont isn’t large enough or
be able to access chosen with care
Secondary research – involves the use of data or
information that has already been collected

This is information that has already been looked into by

previous researches. It could include competitor’s
business reports, government’s statistics or articles.
This type of research is based on information collected
from studies already performed by government agencies,
trade associations or other organizations.

Advantages Disadvantages
- Less expensive as it
doesn’t require
research methods
- Easily accessed
- Readily available
- Information may be old,
so analysis can be
inaccurate
- May be taken from
studies with a different
objective
- Unreliable
- Information can be
biased depending on
who produced it and for
what purpose
Types of information:

Qualitative data – the collection of information based on

attitude, feelings and opinions

Techniques to collect data:

- In depth interviews
- Group discussions

Advantages Disadvantages
- Revealing and useful - Difficult and expensive
- Get an insight of how to to collect
appeal to consumers - Difficult to compare the
- Helps to overcome data with other data as
problems or gain there will be different
opportunities opinions

Quantitative data – the collection of numerical information

Techniques to collect data:

- Questionnaires
- Telephone/online surveys

Advantages Disadvantages
- Summarises data in a - It only shows what is
concise way e.g. 8 out of happening not why it is
10 cat owners prefer happening
Whiskas - Less useful than
- Makes it easier to qualitative data
compare results with - Lack reliability if the
those of other sample is biased
organisations e.g. - Lack validity if the
competitors sample is too small
- Can be used to identify
trends and future
projects
Sample – a group of people that is intended to represent the
overall target population

Primary market research is carried out by sampling the

views of a small selection of consumers. The sample size
measures the number of people/items in the sample. Large
samples increase reliability but cost more. Small
samples decrease costs but are less reliable.

Factors affecting sample size:

 Finance and cost: Individuals believe market research
should be at low cost or even free
 Type of product: An existing product tends to have
secondary research already available, whereas a new
product is less likely to have research available
 Level of risk: The newer the product, the greater the
investment and the greater the risk
 Target market: If the start-ups product is targeted at a
specific market segment then it easier to target the
customers, which makes primary research easier, as it
would be most likely to conduct research using a
stratified sample
The methods of sampling:
Random sample: a sample is selected from a population
where each individual is chosen by chance and has an equal
chance of being selected
Advantages – When the sample is chosen it isn’t biased.
Disadvantages – Random sampling needs large sample
sizes and this is proven to be costly.
Stratified sample: the sample is targeted at a certain group
and a sample is chosen at random from that group
Advantages – It is random and isn’t expensive or difficult to
obtain as a full random sample
Quota sample: the population is broken into groups that
share specific characteristics and research then focuses on a
specific sample size chosen for each group
Advantages – Can help market research focus more closely
on market segments
Disadvantages – Time consuming and is most likely to
result in bias

The types of factors influencing the choice of sampling

methods:
 Time available: random samples are faster but less
accurate
 Size of budget available
 The accuracy of data required: most firms aim for
95% confidence level but this requires larger sample
size
 Niche or mass market: Niche requires
quota/stratified and mass uses random sampling
 Legal Structure
Private Sector

Unincorporated Incorporated

Sole Trader Partnership Private ltd Public ltd

company company

The key factors that influence the choice of legal

structure are:
The type of liability that the firm will have

Unlimited liability – the potential risk sole traders and

partnerships face. They are liable for the debts of the business.

Limited liability – Shareholders are only liable for the money

they have invested not for the overall debts and liabilities of
their company.
Structure What is Advantages Disadvantage
it? s
Sole The simplest  Easy and cheap  Unlimited
type of to set up liability
Trader business to  Owner takes all  Limited
set up. It the profits collateral
requires little  Independence  Difficulties
administratio and more when the
n and privacy then owner
involves one legal structures wishes to go
person on holiday or
running the is off sick
business. (business
will be
incurring a
loss)
Partnershi When two or  Share risks,  Arguments
more people responsibilities can occur
p (up to 20) run and skills  Unlimited
the business.  Extra access to liability
finance  Making
 Cover is decisions
available together
Private ltd A more  Limited liability  Shares
formal legal  Access to more cannot be
company structure and capital than sold on Stock
owners unincorporated exchange
become businesses  More costs to
shareholders  More flexible run the
within the and have their business
business. own privacy  Have to
register at
Companies
House
Public ltd Larger  Limited liability  Founders of
organisations.  Easier to raise the firm can
company finance as lose control
shares can be if their
sold on Stock shareholding
Exchange falls below
 Greater scope 51%
for investment  Pressure
from
investors can
incur losses
Market – a place where buyers and sellers come together to
to exchange goods/services

Types of market:
 Local: (Selling to a small geographical area)
This is the most common type of market as Hairdressers
Sport centres
individuals buy products within a limited
Electricians
geographical area, close to where they live. Plumbers
Adv: Better understanding of customers needs.
Dis: Small and often competitive.

 National: (Selling to a wide geographical area)

This is where consumers are spread
throughout the country or over a wide Bhs
Lloyds TSB
geographical area and the same product is Ford
offered to every individual.
Adv: Larger scope for growth.
Dis: Difficult to manage, as they can be
distribution/communication issues.

 Physical: (Where buyers and sellers meet)

This is the most traditional form of market where an
actual place is set out for the buyer and seller to meet
to decide whether the product is worth being
purchased.
Adv: Easier for buyers and sellers to exchange information
and share preferences.
Dis: Market place needs to be open for trade to take place

 Electronic: (Virtual location where buyers and sellers

trade)
This is usually through technology by using the
Internet as a marketplace. The transaction is
completed online but the delivery method depends on
the nature of the product/service sold.
Adv: Easy and cheap for start-ups
Dis: Could be difficult to be noticed
Demand – The amount of a product or service that customers
are willing to buy

Factors affecting demand:

 Prices: customers often see Price as a signal of value
for money or quality. The extent to which the price
influences the demand for a product is known as price
elasticity of demand.
Higher price can cause fall in demand as customers
won’t think it is good value for their money. A product
priced too cheaply can put off customers who associate
low prices with poor quality.
 Tastes & Fashions: Over time fashion and people’s
tastes change. These changes affect demand for
products and services. Changes in work patterns mean
that fewer families sit down in the evening for a
homemade meal, therefore they would resort to buying
a takeaway.
 Income: Demand can change by the incomes of
costumers. Lower incomes result in less demand or
consumers switching their spending onto cheaper
products.
 Competitor actions: Demand will be affected by
actions of competitors who want to maintain their
market share. A start-up should expect a response from
competitors who lower their prices, introduce new
products and copy the start-ups ideas.
 Society: This can be population or social change that
affects demand in a market e.g. increase in single-
person households can affect estate agents who sell
houses
 Seasonal: Demand can change depending on the time
of year e.g. demand is supposed to be higher at the time
of Christmas.
  Government actions: Laws can change demand e.g.
smoking ban in UK causes impact on demand for bingo
clubs

Market segmentation – subgroup of consumers with similar

characteristics
Customers differ in the benefits they want, the amount they
are willing to pay, the media they view, quantities they buy,
and the time and place they buy.

Demographic segmentation – dividing the market into

groups based on variables such as, age, gender, family size,
income, occupation, education, religion/race and nationality.

Age Consumer needs and wants change

with age. So businesses promote
different types of products to meet
the wants of different age groups.
For example, toys are aimed at
different age groups depending on
the product.
Gender Some products are targeted
specifically at males/females. For
example, females dominate the
market for perfume, but males have
dominated attending sports events.
Most firms have recognised the
potential for growth by targeting
the other gender.
Income Companies can target themselves to
different households with low/high
incomes. Aldi is targeted at people
with lower incomes as it sells good
quality products for cheaper prices.
Social class This classifies families according to
their occupations. Social class
influences purchasing habits
because Class A receives more
income than Class C so they are
more likely to spend more.
 Geographic segmentation – splitting the market into
groups based on the region, country, city and population.

Regions In the UK these might be

England, Scotland, Wales,
Northern Ireland or counties
or major metropolitan areas
Countries Perhaps categorised by size,
development or membership
of geographic region
City/Town size Population within ranges or
above a certain level
Population density Urban, suburban, rural, semi-
rural

Market Segmentation
Advantages Disadvantages
To increase market share: An Lack of information and data:
organisation can identify some markets are poorly
market segments that have researched with little
not been reached and adapt information about what
its product to reach those customers want
segments.
To assist product Difficulty in predicting
development: Gaps in market consumer behaviour: unable
segments can be used to to predict trends in all areas
indicate the scope for and know the behaviour of
introducing new products. people
To extend products into new Hard to reach customer
markets: Targeting at segments once identified:
different users e.g. mobile have to have the right
phones was generally aimed marketing strategy to reach
at businesses before being target customers effectively
extended to everyone.
Factors affecting choice of location

Technology: This includes forms of communication and

information through the computer, Internet, fax and mobile
phones. Technology has allowed small businesses and self-
employed people to communicate from home gathering,
processing and sending information through e.g. the
Internet. Teleworking means that small business can work
from home with instant communication methods and they
can attain any data through a home office.

Costs: A small business faces many costs that it will try to

reduce. It will have factor costs such as, land, labour and
capital.
Land costs will include the costs of premises, however most
start-up businesses are more likely to remain in the area in
which they live. The cost of relocation is often expensive and
it is vital to realize that town centres are more expensive
than out of town areas.
Labour costs influence the location, as businesses will tend
to be based in areas with low level wages or employ younger
people, as they would be making fewer costs.
Transport costs are the location of raw materials and
industries such as mining and quarrying must be located
where materials are found.

Infrastructure: This includes transport links such as roads,

railways and airports. It also includes communication links
and local services that give the ability to move raw materials
and finished products easily. Small businesses will need
access to the above in order to provide their goods/service.
If customers find it difficult to access a firm they will go
elsewhere. The significance of infrastructure will depend on
the nature of the business.

Market: The significance of the market to a firm’s location

decision will depend on the nature of the business. Many
businesses be in an area where there is many customers e.g.
restaurants, salons and newsagents need to be in an area
where the customers are. If a small business is a supplier to
a larger firm it will need to be as close as possible to help the
case of delivering on time.

Qualitative factors: These factors are based on the personal

preferences of the owner. The owner’s lifestyle is likely to be
part of the location decision. Small businesses may find
cheaper premises in other areas but these areas may not be
of good standards. Their family life may also be part of the
decision taking into mind the crime levels, school standards
and attractiveness of the area.
Employing people

Advantages
Employing the right staff can
help a start-up grow rapidly
The owner doesn’t have to
manage all the tasks
Some businesses are
seasonal in nature the
demand for their products
will peak at certain times of
the year and drop at others
Disadvantages
The cost of employing people
can cause businesses to incur
other costs
Managing the staff can be
time consuming as the owner
will have to train the staff to
ensure their doing the job
properly
Employee absence can have a
negative impact on the
business

Employment options:
 Full-time: Permanently employed in the business
working over 30 hrs per week.
 Part time: works less than 30 hrs per week and is
employed under a short-term contract.
 Temporary workers: employed for specific periods or
tasks often under contract from an employment agency
 Consultants and advisers: Individuals and businesses
external to the business which provide specific services
and advice e.g. accountants, lawyers and specialists
 Advantages Disadvantages
Temporary  Flexibility  Higher cost per
 Ideal for certain hr
tasks and  Less likely to
projects understand the
culture of the
business
 Can be not
trained properly
which means
their aren’t right
for customer
service
Full-time  Available to  Cost
handle peaks or  Reduced
unexpected flexibility
increases in  Raises the break
work load even output =
 Potentially higher risk
better for
customer service
 Better trained
Part-time  Keeps costs low  Not always able
= reduces break to handle
even output workload
 Easier to recruit  Less opportunity
 Consistent with for training
increasing  Harder to
demand for communicate if
flexible working hrs are less
Consultants &  Skills are  Often expensive
Advisers provided for the  May not
business when appreciate the
needed culture of the
 Specialist advice business
 for a start-up at  Less committed
low cost to the business
 Adviser gets to
know the
business well