3.1.1 Business and objectives

Topic 1: Entrepreneurs

Key ideas

• An entrepreneur identifies an opportunity, organises resources (land, labour and capital) and takes the risk of starting a business.
• Reasons for setting up in business:
  • Financial: profit, income, wealth, financial independence.
  • Non-financial:
    • independence ("being your own boss");
    • self-fulfilment and pursuing a passion;
    • flexibility and work–life balance;
    • social or ethical goals, e.g. a social enterprise;
    • escaping unemployment.
• Characteristics of entrepreneurs (as listed by AQA):
  • risk taker: accepts uncertainty and possible loss;
  • resilient: recovers from setbacks;
  • focused;
  • passionate;
  • innovative: new products and processes;
  • adaptable: responds to change.
• Challenges of setting up:
  • raising finance;
  • lack of a track record or credit history;
  • building a customer base and brand awareness;
  • competition from established firms;
  • cash-flow problems;
  • long hours;
  • lack of skills (e.g. finance, HR);
  • legal and regulatory requirements.
• How the entrepreneur's role changes as the business grows:
  • From doing everything to delegating.
  • From operational to strategic decision-making.
  • Recruiting managers and building structure and culture.
  • The founder may lose control, e.g. after selling shares.
  • Some founders step aside for professional managers.
  • Example: Innocent Drinks' founders sold a majority stake to Coca-Cola; Coca-Cola became the full owner in 2013.

Glossary

Term	Definition
Entrepreneur	Someone who identifies a business opportunity and takes the risk of organising resources to exploit it.
Risk	The chance of loss or failure attached to a decision.
Enterprise	The skill and willingness to take risks to start and run a business.
Delegation	Passing authority to carry out a task to a subordinate.

Self-test

Q1: Give two financial and two non-financial reasons for starting a business. A: Financial: to earn a profit, and to build wealth or income. Non-financial: independence (being your own boss), and pursuing a passion or social aim.

Q2: Analyse one way an entrepreneur's role changes as the business grows. A: The entrepreneur must delegate operational tasks to employees and managers. This means they move into a strategic role, setting direction and culture. This frees time for growth decisions, but it requires trust and good communication, otherwise control and quality may suffer.

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Topic 2: Business planning and decisions

Key ideas

• A business plan is a document setting out:
  • the business idea and objectives;
  • market research and the marketing plan;
  • the operations plan;
  • staffing;
  • financial forecasts (sales, cash flow, break-even, profit);
  • finance required.
• Purpose and value of a business plan:
  • It forces the owner to think through the idea.
  • It is needed to raise finance, e.g. from banks or angels.
  • It sets targets for monitoring and helps identify risks.
• Limitations of a business plan:
  • Forecasts may be inaccurate (optimism bias).
  • It becomes outdated as markets change.
  • Plans can be rigid.
• Competitiveness is the ability of a business to win customers against rivals through price and/or non-price factors such as quality, brand, service and innovation. It matters because it drives sales, market share and survival.
• Influences on business decisions:
  • objectives;
  • risk and reward;
  • resources: finance, people, time;
  • market conditions: competition, demand;
  • ethics;
  • opportunity cost.
• Risk and reward: higher potential reward usually comes with higher risk. Firms weigh their risk appetite: a start-up with limited cash may avoid high-risk projects.
• Opportunity cost is the next-best alternative forgone. Example: spending £50k on new machinery means not spending it on a marketing campaign.
• Ethical dilemmas: profit versus ethics. Examples:
  • cheaper suppliers with poor labour standards;
  • misleading advertising;
  • tax avoidance.
  • Ethical behaviour may raise costs in the short run but build reputation and loyalty in the long run.

Glossary

Term	Definition
Business plan	A document setting out a business's objectives, strategies and financial forecasts.
Competitiveness	The ability to win customers relative to rivals.
Opportunity cost	The value of the next best alternative forgone when a choice is made.
Ethics	Moral principles about what is right or wrong.
Ethical dilemma	A situation where the profitable choice conflicts with the morally "right" choice.

Self-test

Q1: State two limitations of a business plan. A: Forecasts may be inaccurate (e.g. optimistic sales estimates), and the plan may quickly become out of date as market conditions change.

Q2: Define opportunity cost and give a business example. A: The next best alternative given up. For example, using retained profit to open a new shop means the business cannot use that money to pay off a loan.

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Topic 3: Business objectives

Key ideas

• Objectives are measurable targets that help achieve the mission (a broad statement of purpose).
• Purpose and value of objectives:
  • They provide direction and coordination across functions.
  • They act as a basis for measuring performance.
  • They motivate staff, especially when staff are involved in setting them.
  • They help decision-making and the allocation of resources.
• SMART objectives (AQA version):

Letter	Meaning
S	Specific
M	Measurable
A	Accountable: someone is responsible for achieving it
R	Realistic
T	Time specific

Note: AQA uses "Accountable", not "Achievable".

• Example of a SMART objective: "Increase UK online sales revenue by 12% to £2.24m by 31 December 2027; the marketing director is responsible."
• Common objectives:
  • survival;
  • profit (maximisation or a satisfactory level);
  • growth;
  • market share;
  • cash flow;
  • social, ethical and environmental objectives.
• Objectives change as businesses grow: from survival to growth and profit.
• Value and limitations of objectives:
  • They can motivate staff and focus effort.
  • But they may be unrealistic and demotivate.
  • They can encourage short-termism.
  • They may conflict between functions.

Self-test

Q1: What does the "A" stand for in AQA's SMART? A: Accountable: a named person or team is responsible for achieving the objective.

Q2: Rewrite "We want to grow" as a SMART objective. A: "Increase the number of stores from 8 to 12 by June 2028, led by the operations director, financed from retained profit." (This is specific, measurable, accountable, realistic and time specific.)

Assessment checkpoint: 3.1.1 and 3.1.2 test.

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