0450 BUSINESS STUDIES

SECTION 1: UNDERSTANDING BUSINESS ACTIVITY

SUMMARY NOTES
NAME: ………………………………………………………………………………………

2024-2025
GRADE 10B
Needs and Wants
Needs are things that we must have to survive such as shelter, clothing and food.
Wants are things that we would like to have to make our lives more enjoyable.
Scarcity and opportunity cost – The Economic Problem
Scarcity of resources creates a basic economic problem. Resources are limited but
people’s wants are unlimited. Choices must be made. Resources used to make one
thing cannot be used for another purpose.
The value of the option not selected is known as the opportunity cost.

Factors of production: resources needed to produce goods and services; they are:
Land – any natural resource used in production.
Labour – mental and physical efforts of employees.
Capital – finance, machinery and equipment needed for the manufacture of goods.
Enterprise – individual/s who manage/coordinate the three other factors, make
decisions and take risks.

Importance of specialisation
Specialisation occurs when people and businesses focus on activities they are best at.
Division of labour is when production is split into different tasks, and each worker
performs one of these tasks. It’s a form of specialization.
Advantages Disadvantages
 Workers are trained in one task
 Repetitive tasks can cause boredom
and specialise in this,
and burnout for employees, reducing
increasing productivity and
motivation and job efficiency
efficiency
 If a worker is not present, production
 Specialisation with division of
will be disrupted, causing a waste of
labour will result in better
time and resources, as well as less
quality output
output and efficiency.
 Specialised workers require higher
 An increase in efficiency will
wages, and training current
lead to economies of scale.
employees will increase costs.
 Workers become more skilled
and experienced, reducing
waste of time and resources.

Purpose of Business Activity

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Businesses combine scarce factors of production to produce goods or services to
satisfy people’s needs and wants.
Business Activity:
 Combines scarce factors
 Produces goods and services
 Employs people
Added Value
 the difference between the selling price of a product and the cost of raw materials
used to make it.

Ways for a business to increase added value include:

• make raw materials into finished goods
• branding
• packaging
• add extra features to products
• improve customer service
Advantages
 Maybe able to make a profit if these other costs come to a total less than the
added value
 It can be used to pay other expenses.
Disadvantages
 Increasing the product's price can lead to lower sales and profit.

To increase added value, a business can either:

 Increase the selling price by increasing the quality of goods and services to
convince customers/consumers
 Reduce the cost of materials but keep the price the same

CHAPTER 2: CLASSIFICATION OF BUSINESS

Businesses can be classified into three sectors:
1. Primary Sector: Industry extracts and uses the earth's natural resources to
produce raw materials for other businesses.

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 2. Secondary Sector: The industry manufactures goods using the raw materials
provided by the primary sector.
3. Tertiary sector: The Industry provides services to consumers and other industry
sectors.

Developing Countries: where the primary sector is the most important, as more
employees and output are produced than in secondary and tertiary sectors
Developed Countries: where the output of the tertiary sector is often higher than the
other two sectors combined.
De-industrialisation occurs when there is a decline in the importance of the secondary
sector.
Reasons for changes in the relative importance of the three sectors over time:
 When sources of some primary products become depleted
 Developed economies are losing competitiveness to newly industrialised
countries.
 Due to the rise in living standards, consumers spend more of their income on
services such as travel and restaurants than on manufactured goods.
Mixed Economy: Has both a private sector and a public sector.
Private Sector: Businesses NOT owned by the government will decide what and how
to produce. The main aim is to make profits.
Public Sector: Owned by the government. Government will decide what and how to
produce (i.e. healthcare, education, defence, public transport). The main aim is to
provide a service to customers.
Privatisation refers to selling a public sector business to the private sector.
Advantages of Privatisation Limitations of Privatisation

Costs can be controlled because the Increased unemployment as private sector

private sector’s main objective is profit. businesses may want to cut costs.

More efficient use of capital Less likely to focus on social objective

Competition between private sector

businesses will help improve product
quality.

CHAPTER 3: ENTERPRISE, BUSINESS GROWTH AND

SIZE
An entrepreneur is a person who organises, operates and takes risk to make the
business better
Characteristics of Entrepreneurs:

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  Hard-working
 Risk Takers
 Creative
 Effective Communicators
 Optimistic
 Self-confident
 Innovative
 Independent.
Advantages and Disadvantages of being an Entrepreneur:

Advantages Disadvantages

Independent, able to choose how to use entrepreneurs will have to put their own money into the
time and money business.

Able to put own ideas into practice many entrepreneur’s businesses fail (risky)

It may become successful and very Lack of knowledge and experience in starting and
profitable if the business grows operating a business

Able to make use of personal interests and Lost income from not being an employee for another
skills business (Opportunity cost)

Profits to themselves, no need to share They will have to invest their savings as well as find
them with anyone other sources of finance, which is time-consuming and
expensive

Income is higher than a regular employee

Business Plans.
Business Plan: a document containing the business objectives and essential details
about operations, finance and owners of the new business.
Contents of business plan:-
 Description of the product
 Products and services
 The market

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  Business location and how products will reach customers
 Organisation structure and management
 Financial information
 business strategy
Business plans assist entrepreneurs because:
 It helps gain finance. Banks will ask for a business plan before agreeing to a loan
or overdraft for the business
 It forces the entrepreneur to plan carefully, which reduces the risk of the business
failing.
Government Support for Start-Ups
Governments encourage entrepreneurs to set up a business because start-ups:
 reduce unemployment
 Increase competition
 Increase output
 Benefit society
 Further growth of the economy
Governments may give support to entrepreneurs by:
 Business ideas & help, organising training for entrepreneurs that gives advice,
and support sessions.
 Finance, they may lend loans at low-interest rates or grants, as well as low-cost
premises
 Governments provide grants for training employees to make them more efficient
and productive
 Governments allow entrepreneurs to use research facilities in Universities

Business Size
Why is it beneficial to compare business size?
 Investors can decide which business to invest in.
 Government, different tax rates for small and large firms.
 Competitors, to compare size and importance with other firms.
 Workers, to have an idea of the number of employees needed.
 Banks, the importance of the loan compared to business size.
There are several different measurements of business size, and they all have
limitations:

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 Measurements Limitations

The number of people employed in the business Capital-intensive firms employ fewer
(accessible to calculate) people but produce high levels of output.

The value of the output of the business (useful for Does not take into account the value of
same industry Businesses) goods sold and the sale of goods.

The value of sales (useful for retail businesses, different businesses sell different products
especially if similar products) (expensive and cheap)

The total value of capital employed (takes into Some businesses use Labour-intensive
account all values of capital) methods, which require less capital, more
workers

Capital Employed: the total value of capital used in the business

No method of measuring the size is considered correct, as each method gives different
answers. Businesses choose the method they think is the best. Therefore, businesses
may use more than one method.

Business Growth
There are several ways of measuring the size of the business
 Number of Employees
 Capital Employed
 Output or sales
 Market Share
Benefits of the expansion of the business:
 The possibility of higher profits for the owner.
 More status and prestige for owners and managers.
 Lower average costs.

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  A larger share of its market portion of total market sales it makes is greater.
Ways of Business Growth
Businesses can either grow by:
 Internal Growth
 External Growth

-Internal Growth is when the business expands its existing operations by purchasing
additional equipment, increasing the size of its premises and hiring more labour if
needed.

-External Growth is when the business takes over or merges with another business.

-Takeover: When one business buys out the owners of another business, which then
becomes part of the ‘predator’ business.

-Merger: When two owners of a business agree to join their businesses together

There are three types of External Growth:

1. Horizontal Integration: The same industry and stage of production firms
merge or take over.
For example, a chocolate manufacturer takes over another chocolate manufacturer.
Benefits:
o Reduces the number of competitors in the industry
o Opportunities for economies of scale
o A bigger share of the total market can be achieved
Problems include diseconomies of scale and difficulty in controlling and managing the
business
2. Vertical Integration: when one business merges or takes over another
business in the same industry but at different stages of production, it can
be forward or backwards.

 Forward integration is when merging/takeover is done with the next stage of

production, Ex. a chocolate manufacturing company (secondary sector) merging
with a chocolate shop (tertiary sector)
Benefits of forward:
o The merger provides an assured outlet for its products
o The expanded business absorbs the profit margin made by the
retailer/Manufacturer.
o Information regarding consumer needs and preferences can be obtained directly
from the manufacturer.

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  Backward integration is when merging/takeover is done with the previous
production stage, Ex. a chocolate manufacturing company takes over a cocoa
farm.
Benefits for Backward:
o Merger gives an assured supply of essential components
o The expanding business absorbs the profit margin of suppliers.
o A supplier could be prevented from supplying to other manufacturers.
o Costs of components and supplies are controlled.

3. Conglomerate Merger: a firm merging/taking over another firm in a

different industry. (also known as ‘diversification’)
For example, a chocolate manufacturer is merging with a photography company.
Benefits:
o Activity in more than one industry will diversify and spread the risk taken by the
business.
o Transferring ideas to different sections can help the business.

Disadvantages Caused by Business Growth

o Control and management get harder with expansion (can be prevented by
carefully planning expansions and adjusting management style and hierarchy).
o Larger businesses lead to poor communication (stronger and more efficient
communication channels can prevent it).
o Expansion costs are high and can result in a shortage of finance for businesses
(A financial plan must be prepared in anticipation of expansion; it can include
short/long-term loans to compensate for financial loss).
o Integrating with another business can cause conflicts and difficulties, such as
business culture and style of management. (Compromises will have to be made,
or a new style of management can be applied altogether, which can help reduce
conflicts)
Why Small Businesses Remain Small?
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  The size of their market is small
 Access to capital is limited
 Personal Choice of the owner
 The size and cost of technology

Why Businesses Fail

 Lack of Management Skills – from lack of experience, poor choice of managers
(family business), bad decisions can occur
 Failure to plan for change – businesses must adapt to an ever-changing
business environment. It would be best if risks were taken.
 Over-Expansion – (diseconomies of scale)
 Poor financial management and liquidity issues
 Competition with other businesses – intense competition in the market can make
it hard for new businesses to set up, as already established businesses can drive
newly established businesses out of the market with their low, competitive prices.

CHAPTER 4: TYPES OF BUSINESS ORGANISATIONS

Unincorporated Business: A business that does not possess a separate legal identity
from its owner. These Businesses usually have:
Unlimited liability: the owner can be held responsible for the business's debts.
Greater risk, as owner is putting his personal possessions and living at risk.
Incorporated Business: Business with a separate legal identity. Private/Public limited
companies. These Businesses usually have:
Limited liability: the liability of shareholders in a company is limited to only the amount
they invested
Less risk, as the owner is only risking the capital they invested, as well as any legal
charges effect only the business and not the owner directly
Sole Trader
 It is a business owned and controlled by one person- the owner, who is the sole
proprietor. It is a form of an unincorporated business.

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Advantages Disadvantages

Few legal regulations (Easy to set up) Decisions can be hard to make

Complete control No separate legal identity, unlimited liability

Flexible working time May not be able to raise funds to expand

business

Ability to respond quickly to the needs and wants of May have to work long hours
customers

All profit goes to the owner Difficult to compete with large firms

Complete secrecy in Business matters May not have the proper skills to run a
business

Partnerships
 Partnerships: A form of business in which two or more people agree to own a
business jointly. It can be set up by creating a partnership deal. It’s a form of
unincorporated business.
 Deal of partnership: The written and legal agreement between business
partners. It is not essential but is recommended
 Contents of Partnership Agreement:
o Amount of capital invested by all partners
o Tasks to be done by each partner
o The way profits are shared out
o How long partnership will last
o Arrangements for absence, retirement and how partners could be let
known

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Advantages Disadvantages

Easy to set up a deed of partnership Unlimited liability

Greater access to funds Share the profit

shared decision-making Business ceases to exist if one partner leaves

shared management and workload Decisions binding on all partners

Difficult to raise finance

Private Limited Company (LTD)

 Private Limited Company: Business owned by shareholders but cannot sell
shares to the public (can only sell to family and friends).
 Shareholders: Owners of a limited company who buy shares represent part-
ownership of the company.
Advantages Disadvantages

Raise capital from the sale of shares Cannot sell shares to the public

Limited liability for shareholders Legal formalities

Separate legal identity Accounts are available for the public to see

Continuity Not easy to transfer shares

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 Articles of Association: Contains the rules for managing the company.
Memorandum of Association: Contains vital information about the company and the
directors.
These also apply to a public limited company.

Public Limited Company (PLC)

 Public Limited Company: Businesses owned and controlled by the
shareholders, but they sell to the public, and their shares are tradeable on the
stock exchange.
Advantages Disadvantages

Can sell shares to the public Legal Formalities

Rapid expansion possible/specialist Disclosure of accounts and other information

managers appointed

Limited liability Divorce between ownership and control

Continuity Expensive to ‘go public‘

 Annual General Meeting (AGM): A yearly meeting where shareholders may
attend to vote for a Board of Directors for the upcoming year.

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  Dividends: Payments made to shareholders from the profit of a company. They
are the return for investing in the company.

Franchise
Franchise: An agreement of a business based upon an existing brand/business
Franchisee: the company that received permission to conduct business using the
company’s name and brand.
Have to pay an original fee to the franchisor and a percentage of its profit for the
privilege
The Franchisor: the company that allows another company to conduct business using
the company’s name and brand.
Advantages to franchisor Disadvantage to franchisor

Franchisee buys the licence, which means another Bad reputation if one branch has poor
source of finance management

Expansion is faster The franchisee keeps some profit

Management is the responsibility of the franchisee Training, some aspects of administration, and
advertising are paid by the franchisor

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Advantages to franchisor Disadvantage to franchisor

Percentage of sale revenue is given to the

franchisor every year

Advantages to franchisee Disadvantages to franchisee

Chances of business failure are reduced Less independence

The franchisor pays for advertising Unable to make decisions that would suit the
local area

Fewer decisions to make with an independent The franchisor has the power to withdraw the
business agreement and can prevent the use of the
premises

The franchisor provides training for staff and

management

Banks are often willing to lend to franchisees

due to the low risk.

Joint Venture
Joint Venture: is when two or more businesses join together to create a new business
Advantages Disadvantages

Sharing of costs Profits have to be shared if the project is

successful

Knowledge and experience can be shared Conflict in decision-making

Risks shared Different methods of running a business can

create conflict

Public Corporations
Public Corporations: a business in the public sector owned and controlled by the state
of government (By appointing a board of directors and setting objectives).

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Advantages Disadvantages

Government ownership may be essential to some The profit objective is not as powerful or
countries' industries, such as water supply and important as in private-sector industries.
electricity generation.

Ensure consumers are not taken advantage of Inefficiency because managers rely too much
on the government

Reduce wasteful competitors It can be unfair to the private sector if

subsidies are provided to the public sector.

Can help stabilize failing businesses to create job Lack of close competition can decrease many
opportunities activities

Important public services It can be used for political reasons, preventing

the business from opportunities like other
profit-making businesses.

CHAPTER 5: BUSINESS OBJECTIVES

Business Objectives are aims or targets a business works towards
Businesses need objectives to help them be successful. However, they don’t
guarantee success.
Benefits of having business objectives:
 A clear target to work towards, thus improving Motivation.
 It can help in decision-making.
 It helps unite the whole business towards the same goal.
 It can be used to compare how the business performs through objectives.
Private sector business objectives:
1. Business Survival - Adjust to business environment, change price of products if
necessary
2. Generating profit (total income of business revenue subtracted by total cost)–
pay a return to owners or provide finance to invest further in business
3. Returns to shareholders - discourage shareholders from selling their shares. This
can be done by increasing profit or increasing the share price
4. Growth of business – increase salaries, economies of scale. This is only
achieved if customers are satisfied with the product

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 5. Market Share (the total percentage of total market sales held by one brand or
business) - gives good publicity and more influence over suppliers and
customers.
Calculation of market share=Total market Share 𝑥 100
Company Sales​

Why business objectives can change:

 It will work towards profit after being set up and stable.
 After achieving a high market share, it aims to “return to shareholders”.
 A profit-making business hit with a crisis now has the short-term objective of
survival.
 Changes in consumer tastes and spending patterns
 Technological changes
 New Sources of Competition

Social Objectives
Objectives of Social Enterprise
 Social Enterprise: an enterprise with social objectives and aims to make a profit
to reinvest in the business. It has three objectives:
o Social: to provide jobs and support for disadvantaged groups
o Environmental: to protect the environment.
o Financial: to make a profit to reinvest in the enterprise and expand its
social work.

Objectives of Public Sector Businesses

 Financial: Meet profit targets set by the government - either reinvested or funded
back to the government.
 Service: meet quality targets the government sets and provide services to the
public.
 Social: protect or create employment in certain areas.

Stakeholder Objectives
Stakeholder: any person or group with a direct interest in the performance and activities
of a business
There are two types of stakeholder groups:
1. Internal Stakeholders work/own the company (owners, managers, workers)

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 2. External Stakeholders are outside the business (consumers, government, banks,
suppliers, Wider community, Pressure groups, and competitors)
Each stakeholder group has different objectives for the performance of the
business
1. Internal Stakeholder (Owners, managers and employees) objectives are
payments or profits; they want business growth, so the value of investment
increases, or they get higher status/power
2. Customers' objectives are reliable products, value for money, good quality, good
design and good service
3. Government objectives include money from taxes, employing more people,
increasing the country’s output
4. The bank’s objectives are to make a profit out of loans and the payback of
interest.
Since different stakeholders have different objectives, it may cause conflict, to try to
please all the stakeholders
For example, customers want cheap products, but workers want higher salaries.
Therefore, managers must compromise to decide which objectives are best for the
company.

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