What is enterprise?

Enterprise means spotting a gap in the market and taking the risk of setting up a business to fill it. An entrepreneur is the person who takes on this financial risk in return for the reward of profit.

Why businesses start

Entrepreneurs are driven by a mix of factors: financial motives (profit, becoming your own boss) and non-financial motives (independence, personal satisfaction, control over working life, passion for an idea, or continuing a family tradition). Exam answers should always link the motive to the specific business scenario given.

Calculated risk

Starting a business is risky - most new businesses fail within the first few years. Entrepreneurs take a calculated risk, weighing up the potential reward (profit, market share) against the potential loss (money invested, time, reputation). Risk cannot be removed completely, only reduced through research and planning.

Spotting a business opportunity

Opportunities come from: changes in technology, changes in consumer taste/fashion, a competitor's weakness, or a niche market nobody else is serving. A good business idea must solve a customer problem or meet a customer need.

Adding value

A business succeeds by adding value - making a product or service more appealing to customers than a rival's, so they will pay a higher price than the cost of production. Methods of adding value include: branding, convenience, unique design, better quality, and superior customer service. Formula to remember: added value equals selling price minus cost of materials/production.

Enterprise skills

Successful entrepreneurs typically show: innovation, risk-taking, determination, good communication, and strong leadership. Exam questions often ask you to judge which skill matters most in a given scenario - always justify with reference to the case study.

Common mistakes to avoid

• Do not confuse 'entrepreneur' (the risk-taking individual) with 'enterprise' (the activity of starting/running the business).
• Do not say a business idea is good just because it is 'new' - it must also be viable and meet a genuine customer need.
• Always explain WHY a factor matters, not just WHAT it is - AQA rewards application and analysis over simple description.
• Remember added value is about the price customers are willing to pay above cost, not just making something 'better'.

What is a market?

A market is any place where buyers and sellers exchange goods or services. Markets can be local, national or global, and can be for physical products or services.

Market size, growth and share

Market size is the total value or volume of sales in a market. Market growth measures how a market is changing over time, usually shown as a percentage change in sales. Market share is the percentage of total market sales held by one business, calculated as: (business sales / total market sales) x 100. Growing market share often means growing faster than competitors, not just growing in absolute terms.

Dynamic markets

Markets change because of new technology, changing consumer trends, increased competition, ethical and environmental considerations, and changes in legislation. Businesses must adapt or risk losing customers. A common mistake is thinking a market never changes once a business is established.

Market segmentation

Segmentation means dividing a market into groups of customers with similar characteristics, so a business can target them more effectively. Key segmentation types are: demographic (age, gender, income, family size), geographic (location, region, urban/rural), and psychographic (lifestyle, interests, values). Niche markets are small, specialised segments with few competitors; mass markets are large segments with many customers and often more competition.

Market research

Market research gathers information about customers and competitors to reduce risk. Primary research is new, first-hand data (surveys, questionnaires, focus groups, observation) - it is specific but can be expensive and time-consuming. Secondary research uses existing data (government reports, competitor websites, trade journals) - it is cheaper and quicker but may be out of date or not specific to the business.

Qualitative vs quantitative data

Qualitative data is descriptive, about opinions and feelings (why customers behave a certain way). Quantitative data is numerical, about facts and figures (how many, how much). Good market research usually combines both. A common exam mistake is confusing the two or claiming one is always better - each has its use depending on the business question.

Common mistakes to avoid

Don't confuse market share with market size. Don't say primary research is always better than secondary - context matters. Always link market research findings back to a specific business decision (e.g. product design, pricing, place) rather than describing research in isolation.

Where does business finance come from?

Businesses need finance to start up, run day-to-day, and grow. Sources split into internal (from the business itself) and external (from outside).

Internal sources

• Personal savings: the owner's own money, common for sole traders starting out.
• Retained profit: profit kept back after tax and drawings instead of paid out, used to fund growth without debt.
• Sale of assets: selling unused equipment, property or stock to raise cash quickly.

External sources

• Bank loans: a lump sum repaid with interest over an agreed term, good for large one-off purchases like machinery.
• Overdrafts: a flexible short-term facility letting a business spend more than is in its account, but interest rates are usually high.
• Share capital: money raised by selling shares in a limited company (only Ltd and plc can do this, not sole traders or partnerships).
• Venture capital: investment from specialist investors in exchange for a share of the business, often with expertise attached.
• Crowdfunding: raising small amounts from many people online, often via a rewards or equity platform.
• Trade credit: buying stock or supplies now and paying the supplier later, usually within 30 to 90 days.
• Peer-to-peer lending and government grants/loans are also examples worth naming in answers.

Matching finance to purpose

A key exam skill is matching the right source to the right situation. Short-term needs like a cash-flow gap suit an overdrift or trade credit. Long-term needs like buying premises suit a bank loan or share capital. Start-ups with no trading history often rely on personal savings, family/friends, or a bank loan since they cannot yet show retained profit.

Common mistakes

• Confusing 'capital' (money invested) with 'profit' (money earned after costs).
• Forgetting that only limited companies can sell shares.
• Assuming an overdraft is cheap; it usually has a higher interest rate than a loan because it is flexible and unsecured.
• Not explaining WHY a source suits the situation in extended answers; always link the source's features (cost, speed, risk, control) to the business's circumstances.
• Mixing up internal and external sources when the question specifically asks for one type.

Exam tip

Questions often say 'Justify which source of finance X should use.' Structure your answer: state the source, give a reason from the business's context, and evaluate a drawback or an alternative.

What operations means

Operations is how a business actually makes its product or delivers its service. It covers production methods, quality, and the supply chain (procurement, stock and logistics) that gets materials in and finished goods out.

The three production methods

• Job production: one-off, unique items made start to finish, e.g. a wedding cake or a bridge. High quality and flexibility, but slow and expensive per unit, and workers need broad, flexible skills.
• Batch production: groups (batches) of identical items made together, e.g. a bakery's daily bread run. More flexible than flow, but machines must be reset between batches, which costs time and money.
• Flow production: continuous, standardised production on an assembly line, e.g. cars or canned drinks. Very efficient with low unit cost thanks to economies of scale, but needs high, steady demand and is inflexible to change.

Choosing a method

The right method depends on the level of demand, how much the product needs to be customised, and how much capital the business has to invest in machinery.

Managing the supply chain

• Procurement is sourcing and buying the inputs (materials, components) needed for production.
• Businesses choose suppliers based on price, quality, reliability and delivery speed - a single cheap-but-late supplier can halt the whole production line.
• Logistics covers getting stock in and finished goods out, including choice of transport and storage.

Stock control

• Buffer stock is the minimum stock level a business keeps as a safety margin in case of unexpected demand or delivery delays.
• Just In Time (JIT): stock arrives exactly when needed for production, so little or no buffer stock is held. This cuts storage costs and waste but leaves the business vulnerable to any delay in the supply chain.
• Just In Case (JIC): the business holds larger buffer stocks so it never runs out. This protects against disruption but ties up cash in stock and raises storage costs.

Quality

• Quality control: checking the finished product at the end of production, usually by inspectors, to catch faults before they reach customers. It only spots problems - it does not stop them happening.
• Quality assurance: building quality checks into every stage of the process so that faults are prevented, not just caught. This is generally seen as more effective and cheaper in the long run because it reduces waste and returns.
• Poor quality damages a business's reputation and can lead to costly product recalls.

Common mistakes

• Mixing up quality control (checking at the end) with quality assurance (checking throughout).
• Saying JIT 'has no risk' - it actually increases risk of stock-outs if a supplier is late.
• Forgetting that flow production needs high, consistent demand to be worth the investment in machinery.
• Assuming batch production is the same as flow - batch still needs resetting between different product runs.

Why businesses need HR

Human resources (HR) is about getting the right number of people, with the right skills, in the right jobs, at the right time. Poor HR planning leads to understaffing (missed orders, overworked staff) or overstaffing (wasted wage costs).

Organisational structures

• A hierarchical structure has many layers of management, narrow spans of control (few people reporting to each manager) and long chains of command.
• A flat structure has few layers, wide spans of control (many people reporting to one manager) and short chains of command.
• Span of control = the number of people directly managed by one person.
• Chain of command = the route through which instructions pass from the top to the bottom of a business.
• Delayering removes a layer of management to cut costs and speed up decisions, but it increases the span of control for those left.

Recruitment and selection

• Internal recruitment fills a job using an existing employee. It is cheaper and quicker, and the person already knows the business, but it limits new ideas and creates another vacancy.
• External recruitment fills a job with someone from outside. It brings fresh ideas and a wider choice, but it is slower and more expensive (advertising, interviewing, induction).
• Job description: states the duties and responsibilities of a role.
• Person specification: states the qualifications, skills and experience needed to do the job.
• Selection methods include application forms, CVs, interviews, tests and references.

Training

• Induction training introduces a new employee to the business, its people and its procedures.
• On-the-job training happens at the workplace, often shadowing an experienced worker; it is cheap but quality depends on the trainer.
• Off-the-job training happens away from the workplace (colleges, courses); it is high quality but expensive and means lost working time.

Motivation in the workplace

• Financial methods: wages (paid per hour), salaries (fixed annual amount), commission (paid per sale), bonuses, profit-sharing and fringe benefits.
• Non-financial methods: job rotation, job enrichment, giving employees more responsibility, praise and better working conditions.
• Motivated employees are usually more productive and produce higher-quality work, which can improve competitiveness.

Common mistakes

• Do not confuse span of control (people managed) with chain of command (route of authority).
• Always link a recruitment or training method to a specific business situation in exam answers, not just a definition.
• Remember that internal recruitment still creates a NEW vacancy lower down the structure.

Business in the wider world

Every business exists inside an economy, and it must respond to forces it cannot control: technology, legislation, economic conditions and competition. AQA wants you to explain how these external factors affect decisions, not just list them.

Economic climate

• A boom means high demand, low unemployment and rising prices (inflation risk); businesses expand and take on staff.
• A recession is officially two consecutive quarters of falling GDP; demand falls, unemployment rises, and businesses cut costs, delay investment or make redundancies.
• Interest rates set by the Bank of England affect borrowing costs and consumer spending (higher rates mean less spending and dearer loans).
• Exchange rates affect importers and exporters: a weak pound makes UK exports cheaper abroad but imports (raw materials) dearer.

Technology

• New technology can cut costs (automation), open new markets (e-commerce) and change how customers are reached (social media marketing).
• It also brings threats: cybersecurity risk, the cost of upgrading systems, and competitors adopting tech faster.
• Common mistake: students say 'technology is good' without explaining a specific cost or benefit to a specific business.

Legislation (the law)

Key areas AQA examine:

• Consumer law: goods must be of satisfactory quality, fit for purpose and as described (Consumer Rights Act 2015).
• Employment law: National Minimum Wage / National Living Wage, contracts of employment, protection from unfair dismissal.
• Health and safety law: employers must provide a safe working environment (Health and Safety at Work Act).
• Breaking the law risks fines, lawsuits and reputational damage — always link the law to a real business cost.

Ethics and environment

• Ethical business means doing what is morally right, even if it costs more (fair pay, sustainable sourcing).
• Trade-off: ethical/environmental choices (recycled materials, fair trade) often raise costs but can improve brand image and customer loyalty.
• Environmental considerations include waste, packaging and carbon footprint; failing to act can trigger boycotts.

Competition

• Businesses monitor competitors' prices, products and promotions and must respond (price wars, new features) to keep market share.
• A monopoly (very little competition) can set higher prices; strong competition usually benefits consumers.

Exam tip

Always apply the factor to the specific business in the case study — state the factor, explain the impact, and link it to profit, costs or competitiveness (PEEL: Point, Explain, Example, Link).