Sample Notes: Enterprise

AS Level Business – Detailed Notes

Chapter 1.1: Enterprise

1.1.1 The Nature of Business Activity

Purpose of Business Activity

• Definition: Business activity refers to the process of producing goods and services to satisfy human needs and wants.
• Objective:
  • To meet consumer demand by providing products and services.
  • To generate profit for owners/shareholders.
  • To create employment and support economic development.
• Types of Needs:
  • Basic needs: Food, shelter, clothing.
  • Wants: Desires for goods/services beyond basic needs.

Factors of Production

• Land:
  • All natural resources used in production (e.g. minerals, water, land itself).
  • Reward: Rent
• Labour:
  • Human effort (both physical and mental) used in production.
  • Reward: Wages
• Capital:
  • All man-made resources (e.g. machinery, tools, buildings).
  • Reward: Interest
• Enterprise:
  • The risk-taking and organising ability of an entrepreneur who brings other factors together.
  • Reward: Profit

Concept of Adding Value

• Adding value: The difference between the selling price of a product and the cost of inputs used to produce it.
• Formula:
  Added Value = Selling Price – Cost of Inputs
• Ways to Add Value:
  • Branding
  • Excellent service quality
  • Customisation
  • Innovation in product design

Nature of Economic Activity, Problem of Choice, and Opportunity Cost

• Economic Activity: Activities concerned with the production, distribution, and consumption of goods/services.
• Basic Economic Problem:
  • Scarcity: Limited resources vs. unlimited wants.
  • Leads to the problem of choice: which goods/services to produce.
• Opportunity Cost:
  • The next best alternative foregone when a choice is made.
  • Affects consumers, businesses, and governments.
  • Example: Choosing to invest in marketing vs. R&D.

Dynamic Business Environment

• Definition: The constantly changing external conditions that affect business.
• Factors:
  • Technology (e.g. AI, automation)
  • Consumer tastes
  • Competition
  • Economic changes (inflation, interest rates)
  • Government regulations
• Implication: Businesses must adapt quickly to survive and remain competitive.

Why Businesses Succeed or Fail

• Success Factors:
  • Strong leadership
  • Adequate capital and cash flow
  • Innovation and adaptability
  • Effective marketing
  • Skilled employees
• Failure Reasons:
  • Poor planning
  • Lack of finance
  • Ineffective management
  • Ignoring customer needs
  • External shocks (e.g. COVID-19)

Types of Businesses

• Local: Operates in a small geographic area, serves local customers only.
• National: Operates throughout a single country.
• International: Sells products/services in multiple countries but may not be based in them.
• Multinational: Operates with physical presence (factories, offices) in several countries.

1.1.2 The Role of Entrepreneurs and Intrapreneurs

Qualities Needed for Success

• Entrepreneurs:
  • Risk-taking
  • Visionary thinking
  • Innovation
  • Decision-making
  • Leadership
  • Resilience
• Intrapreneurs:
  • Creativity
  • Initiative
  • Problem-solving within an organisation
  • Able to innovate while following company goals

Role of Entrepreneurship in Creating/Starting a Business

• Generates new ideas and converts them into viable businesses.
• Stimulates job creation and economic growth.
• Leads to product and process innovation.
• Encourages self-reliance and financial independence.

Role of Intrapreneurship in Business Success

• Employees acting like entrepreneurs within an existing company.
• Drives internal innovation, new products, improved systems.
• Enhances competitiveness and adaptability.
• Encourages a culture of innovation without leaving the business.

Barriers to Entrepreneurship

• Financial barriers: Lack of access to capital or loans.
• Regulatory barriers: Complex procedures, excessive bureaucracy.
• Cultural/Social: Fear of failure, lack of support.
• Skill Gaps: Lack of business knowledge or experience.
• Economic: Recession, inflation, low consumer demand.

Business Risk and Uncertainty

• Risk: Measurable likelihood of loss (e.g. investing capital in a new product).
• Uncertainty: Unpredictable external events (e.g. new government regulations, pandemics).
• Entrepreneurs need to manage both using planning, insurance, and flexibility.

Role of Business Enterprise in Development of a Country

• Employment generation
• Tax revenue for government
• Exports and improved balance of payments
• Infrastructure development
• Improved standard of living
• Encourages innovation and new industries

1.1.3 Business Plans

Meaning and Purpose

• A business plan is a written document that outlines a business’s goals and how it plans to achieve them.
• Purpose:
  • Guide for decision-making
  • Attract investors/lenders
  • Assess feasibility of business idea
  • Monitor progress and performance

Key Elements of a Business Plan

1. Executive Summary – Overview of the business.
2. Business Description – Nature of business, mission, vision.
3. Market Analysis – Industry trends, customer segments, competitors.
4. Marketing Plan – Promotion, pricing, place, product.
5. Operational Plan – Production, suppliers, logistics.
6. Management and Organisation – Team, roles, legal structure.
7. Financial Plan – Sales forecast, costs, profit/loss, break-even, funding needs.
8. Appendices – Supporting documents (e.g. CVs, legal docs, market data).

Benefits of a Business Plan

• Clarifies objectives and how to achieve them.
• Identifies strengths and weaknesses.
• Helps attract investors and loans.
• Facilitates monitoring and control of business performance.
• Reduces risk by planning for contingencies.

Limitations of a Business Plan

• May become outdated quickly due to changing environment.
• Relies on assumptions that may be inaccurate.
• Can lead to overconfidence or rigid decision-making.
• Time-consuming to prepare and costly for small businesses.
• Not a guarantee of success.