AQA GCSE Business

What a business is for

A business is an organisation that produces goods or supplies services to meet customers' needs, and it does so in return for money. People start businesses for a mix of reasons, and the same person often has several at once.

• To produce goods, such as furniture or bicycles, or to supply a service, such as hairdressing or accountancy.
• To distribute products made by others, as a shop or an online retailer does.
• To fulfil an opportunity that has been spotted, for example a town with no bakery or a product that customers say they cannot find.
• To provide a good or service that benefits other people, which is the main reason behind many charities and community businesses.

Businesses exist because the people in an economy have more wants than there is money or resources to satisfy them.

Goods and services, needs and wants

A good is a physical product that can be touched and stored, such as a phone or a loaf of bread. A service is something done for a customer that cannot be stored, such as a haircut, a bus ride or a repair. Many businesses sell both: a restaurant supplies food (a good) and a meal served at the table (a service).

A need is something a person must have to live, such as food, water, shelter and clothing. A want is something a person would like but could live without, such as a games console or designer trainers. Businesses make their money mostly by selling wants, because people will pay for more things than they need, and what counts as a want changes with fashion and income.

Factors of production

Every business uses four factors of production, the resources needed to make goods or supply services.

Opportunity cost

Resources are limited, so using them on one thing means giving up another. Opportunity cost is the value of the next best alternative that is given up when a choice is made. If a business has £50,000 and spends it on a new van, the opportunity cost might be the new machine it could have bought instead. A business weighs the benefit of a choice against what it gives up, which is why the idea comes up in decisions about investment, staffing and stock.

The three sectors

Businesses are grouped by what they do.

A single firm can sit in more than one sector. A farm that sells vegetables is primary, and one that turns its milk into cheese is also secondary. In the UK most people work in the tertiary sector.

Enterprise and entrepreneurs

Enterprise is the act of seeing a business opportunity, bringing together the resources needed and taking the risk of starting a business. An entrepreneur is the person who does this. The entrepreneur puts their own money, time and reputation at risk, and in return takes any profit.

Characteristics that successful entrepreneurs often show include being hard working, innovative (coming up with new products or new ways of doing things), organised, and willing to take a risk. Risk matters because a new business can fail and the owner can lose what they put in.

People become entrepreneurs for several reasons:

• to be their own boss, with no manager telling them what to do;
• to have flexible working hours, which can suit people with family commitments;
• to pursue an interest, such as turning a hobby in baking or photography into a living;
• to earn more money than they would in a job;
• to fill a gap in the market, where customers want something that no one supplies;
• because they are dissatisfied with their current job.

The changing business environment

The conditions a business works in never stay still, so a business that stands still risks falling behind. The main sources of change are:

• technology, which creates new products and new ways of selling, and makes older ones obsolete;
• the economic situation, such as changes in interest rates, unemployment and how much customers have to spend;
• legislation, which changes what businesses are allowed or required to do;
• environmental expectations, as customers and governments increasingly expect businesses to cut waste and pollution.

A business responds by changing what it sells, how it produces, how it markets and how it finances itself. A high-street shop that once sold only in the store and now also sells online is responding to this kind of change, and each change in the environment affects operations, human resources, marketing and finance together, not one at a time.