Enterprise, business growth and size · IGCSE Business

Identify two ways the size of a business can be measured. Award one mark per way (max 2). Points might include:

• (Number of) employees/size of workforce / (amount of) labour
• Value of output / value of sales / revenue/turnover
• Number of customers / numbers of sales / volume of output
• (Value of) capital employed / value of statement of financial position
• Market share
• (Number of) outlets/shops/factories Other appropriate responses should be credited.

Identify two reasons why governments support new businesses. Award one mark per reason (max 2). Points might include:

• Reduce unemployment/create jobs
• Increase competition
• Increase output / increase GDP / economic growth
• Benefit society/improve environment
• Small businesses can grow
• Generate taxation/taxes
• Motivate/encourage entrepreneurs/innovation
• Reduce imports / increase export
• Provide a variety of goods/services/can provide specialist goods
• Some start-up/smaller businesses often have lower costs than larger businesses and can pass these onto consumers through lower prices
• Help attract investors/businesses from other countries. Other appropriate responses should be credited.

Identify four reasons why a business might fail. Award one mark per reason (max 4). Points might include:

• Poor planning / lack of objectives / poor business plan
• Cash flow problems / lack of working capital/liquidity issues
• High/rising costs/persistent loss/not meeting break even
• Poor management (skills) / lack experience / lack of knowledge/poor decision making/co-ordination
• Overexpansion / business expands too quickly
• Lack of demand/sales / (too much) competition / no customer loyalty
• Poor marketing/low recognition
• Lack/poor market research
• Economic influences / changes in business environment e.g. inflation/ recession/exchange rate
• Failure to invest in new technologies/failure to adapt to changes in the market
• Lack of finance/capital
• Poor choice of location
• Bad reputation / poor brand image Other appropriate responses should be credited.

Define ‘entrepreneur’. Award 2 marks for a full definition. Award 1 mark for a partial definition.

• The person who (organises, operates and) takes the risk to start a new business [2]
• An individual who takes the financial risk of starting (and managing) a new business [2]
• A person who combines factors of production to start a business [2] Partial definition e.g.
• A person/individual who starts/sets up a business [1].

Explain two reasons why a business might remain small. Which reason is likely to be the most important? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for justified decision about which reason is likely to be the most important. Points might include:

• Owner’s choice/objectives [k] as owner does not want the responsibility/stress for managing a large(r) business OR owner wants control over business (decisions) OR want to avoid increased financial risk [an] AND/OR so may achieve a better work life balance [an]
• Limited access/availability of finance / low profit / liquidity/limited/low working capital [k] so cannot afford/not have enough funds to expand /reinvest [an]
• Market size/ amount of customers / level of demand / operate in a niche market [k] limiting potential revenue [an]
• High competition / a few large businesses may control market [k] so difficult for a small business to compete / customers may be brand loyal to competitors [an] AND/OR lower sales / lower market share [an]
• Wants to maintain close relationship with its customers/ provide a personal service / type of industry/product/service offered [k] allowing them to build customer loyalty [an]
• Remain flexible / able to respond quickly to changes in consumer tastes [k] to help maintain consumer loyalty [an]
• Lack of knowledge/skills /experience / limited access to/lack of suitable labour / lack of suitable employees [k]
• Limited access to/lack of suitable land/lack of space [k] so not able to meet customer demand [an]
• Limited access to/lack of suitable resources/raw materials [k] Other appropriate responses should be credited. Justification might include: It might be the owner’s objective [k] as may want a better work-life balance [an]. It could be a lack of finance [k] so cannot afford to expand [an]. Finance is likely to be the most important reason as without finance, the business cannot grow even if the owner wanted to [eval]. Whereas someone can be recruited to manage the business if the owner wanted time to do other things [eval].

Explain two possible problems a business might experience as it grows. Which problem is likely to be the most important? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for justified decision about which problem of growth is likely to be the most important. Points might include:

• Communication problems/miscommunication [k] leading to mistakes/ errors [an]
• Difficult to control (many people) [k] which could slow down decision-making [an]
• Co-ordination problems (between departments) [k] which could decrease efficiency [an]
• Lower levels of employee motivation/morale [k] leading to higher levels of absenteeism [an]
• Need more finance / lack of finance / need more working capital / cash flow problems [k]
• Difficult/need to find more space/larger building / lack of space [k] which could increase fixed costs/rent [an]
• Difficult to access/find more raw materials [k] may increase variable costs [an]
• Need/difficult to find suitable employees [k] leading to higher recruitment/training/labour costs [an] Other appropriate responses should be credited. Justification might include: It can be difficult to control [k] which could slow down decision-making [an]. Another problem is that it may be difficult to recruit more employees [k] leading to higher recruitment costs [an]. Control is the most important problem because slow decisions could mean opportunities are missed [eval], whereas a business could introduce machinery reducing the number of employees needed [eval].

Define ‘business plan’. Award 2 marks for a full definition. Award 1 mark for a partial definition.

• A document containing the business objectives and important details about the operations/finance/owners of the (new) business. [2]
• A detailed written document outlining the purpose and aims of a business which is often used to persuade lenders/investors to finance a business proposal. [2] Partial definition, e.g.
• Provides information about business objectives/aims. [1] Other appropriate responses should be credited.

Outline two potential problems for ASW as the business continues to grow. Award 1 mark for each relevant problem (max 2). Award 1 mark for each relevant explanation in context (max 2). Points might include:

• Poor communication [k] about the business objectives [app]
• Difficult to control [k] particularly as it tries to take advantage of globalisation [app]
• Lack of coordination [k] which may cause issues for its business plan [app]
• Low morale/motivation/commitment of employees/lack of employee loyalty [k] when setting up/managing websites [app]
• Could be difficult to obtain finance / cashflow problems / lack of working capital [k] especially at a time when there is an increase in taxes [app]
• May be difficult to find suitable employees [k]. Other appropriate responses should be credited.

Identify four reasons why a business might remain small. Award 1 mark per reason (max 4). Points might include:

• Limited access to/lack of capital (to expand)
• Limited access to/lack of suitable labour
• Limited access to/lack of suitable land
• Limited access to/lack of suitable resources/raw materials
• Personal preference / owners’ choice / owner does not want the responsibility / wants to keep control
• Lack of skills/knowledge/experience (to expand)
• Size of the market / amount of customers / level of demand / small market
• To maintain close customers relationships / provide a personal service / type of industry
• Some large firms dominate the market / low market share / too much competition
• Can be flexible / respond quickly to changes in customer tastes
• No economies of scale / to avoid diseconomies of scale
• Operating at maximum possible output Other appropriate responses should be credited.

Identify two ways to measure the size of a business. Award 1 mark per way (max 2). Points might include:

• (Number of) employees / size of workforce / (amount of) labour
• Value of sales/revenue
• Number/amount of customers / volume of output / number of sales
• Value of output
• (Value of) capital employed Other appropriate responses should be credited.

Do you think the advantages of taking over a competitor are greater than the disadvantages? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for a justified decision as to whether the advantages of taking over a competitor are greater than the disadvantages. Points might include: Advantages:

• Reduced/less competition [k] increasing sales [an] AND/OR increase revenue [an]
• Gain brand name/image of competitor / better reputation [k] leading to increasing customer loyalty [an] AND/OR more sales [an]
• Economies of scale [k] leading to lower average/unit costs [an]
• Access new skills/expertise/resources/ideas (from other business) [k]
• More capacity/output [k] leading to possible economies of scale [an] Disadvantages:
• Increased costs [k] which the business might not be able to afford [an]
• Possible clash of management styles [k] leading to wrong decisions being taken [an]
• Could demotivate employees [k] lowering efficiency [an]
• Difficult to coordinate [k] could lead to mistakes/errors [an]
• Poor communication [k] which could demotivate employees [an]
• Less choice for customers [k] Other appropriate responses should be credited. Justification might include: One advantage of a taking over a competitor is less competition [k] which could allow the business to increase prices [an]. However, there could be a high cost [k] which the business might not be able to afford [an]. The advantages are greater because the combination of less competition and higher prices may lead to higher revenue [eval] which may help cover the costs of the takeover [eval].

Define ‘entrepreneur’. Award 2 marks for a full definition. Award 1 mark for a partial definition.

• An individual who takes the financial risk of starting (and managing) a new business [2]
• A person who takes the risk for a new business venture [2] Partial definition e.g.
• A person who starts/sets up a business [1]

Identify two reasons why a governments support start- up businesses. Award 1 mark per reason (max 2). Points might include:

• Create jobs / reduce unemployment
• Increase competition
• Increase output / improve gross domestic product / increase GDP
• Generate taxation/taxes
• Motivate/encourage entrepreneurs
• (Business) can grow (into larger businesses in the future)
• Reduce imports / increase exports
• Provide a wider variety of goods/services Other appropriate responses should be credited.

Identify two ways a government can support business start-ups. Award 1 mark for each way (max 2). Points might include:

• Grants/subsidies
• (Low interest) loans
• Low-cost/rent-free premises
• Provide training
• Tax relief/lower tax/tax holiday
• Advice/help with research
• Help promote/advertise the business
• Provide mentors Other appropriate responses should be credited.

Identify two methods of external growth a business might use. Award 1 mark for each method (max 2). Points might include:

• Horizontal integration
• Forward integration
• Backward integration
• Conglomerate/diversification
• Joint venture Other appropriate responses should be credited.

Identify two reasons why new businesses are at a greater risk of failure. Award 1 mark for each reason (max 2). Points might include:

• Lack of finance/(start-up) capital
• Cash flow problems/lack of liquidity
• Level of competition/market already saturated
• Lack/low level of customers/demand/sales/lack of customer loyalty
• Poor planning/no business plan/lack of objectives
• Lack of (managerial/business) experience/skills
• Inadequate/no market research/poor marketing
• No/low reputation/brand awareness/brand image Other appropriate responses should be credited.

Explain two characteristics Hal will need to become a successful entrepreneur. Award 1 mark for identification of each relevant characteristic (max 2). Award 1 mark for each relevant reference to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include:

• Risk-taking [k] especially as plans to leave his job [app] because the owner may lose their investment [an]
• Hard-working [k] as must be ready to do everything on own/as may have to work long hours [an] to set up his bakery [app]
• Creative [k] as having (new) ideas can help gain customers [an] for his private sector business [app]
• Effective communicator/persuasive [k] with his stakeholders [app] as may need to convince its banks/suppliers/customers to lend/provide/buy goods [an]
• Perseverance/determination/resilience/self-motivated [k] so needs to be prepared to keep going when faced with problems [an]
• Optimistic [k] so always think they will/can succeed [an]
• (Self-) confident [k] so convince people/banks to invest [an]
• Independent [k] as be able to work without any help [an]
• Innovative [k] Other appropriate responses should be credited.

Identify two ways to measure the size of a business. Award 1 mark per way (max 2). Points might include:

• (Value of) capital employed
• Value of output / sales OR revenue
• Number of customers / sales / volume / amount of output
• (Number of) employees Other appropriate responses should be credited.

Outline two reasons (other than finance) why Jonathon’s business is likely to remain small. Award 1 mark for each relevant reason (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include:

• Owner’s objectives / not want the responsibility for managing a larger business / to keep control of the business [k] as a sole trader [app]
• Low demand / (small) size of market [k] in the shop [app]
• A few large businesses control the market / market domination [k] for office equipment [app]
• Lacks knowledge / skills / experience (to expand) [k] such as how to manage cash flow [app]
• Wants to maintain close relationship with its customers / provide a personal service [k]
• To remain flexible / able to respond quickly to changes in consumer tastes [k]
• Type of industry / market / product / service [k] Other appropriate responses should be credited.

Identify two ways a government can support business start-ups. Award 1 mark for each relevant way [max 2]. Points might include:

• Providing (low cost) loans / low interest rates
• Providing grants
• Low-cost rent
• Lower tax / tax relief
• Providing training
• Providing advice / research / marketing data
• Providing mentors Other appropriate responses should be credited.

Explain four characteristics of a successful entrepreneur. 8 Award 1 mark for each characteristic of a successful entrepreneur (max 4). Award a maximum of 1 additional mark for each explanation. There are no application marks available for this question. Relevant characteristics might include:

• Self-confident – strong belief in their own ability and ideas
• Creative – find new and different ways to attract customers
• Independent – will need to be able to work without help/ideas/input from others
• Hard worker/dedicated – be prepared to work long hours
• Risk-taker – willing to risk losing own capital as a sole trader or partnership / willing to risk losing personal assets / accepts possibility of failure
• Effective communicator – able to persuade others
• Optimistic – think positively about new ventures and continues if there are setbacks
• Innovative – able to develop new products to retain customers
• Self-motivated/ambitious/passionate – determined to overcome difficulties
• Resilience/perseverance – does not give up if problems occur Notes:
• This question is about an entrepreneur not a sole trader or manager.
• Some explanations can be used for more than one point but only award once, for example coming up with unique products could be used for creative or innovative.
• The following are too vague; team player, good leader. organiser, collaborator, good decision maker, open minded, For example: Self-confident (1) as the entrepreneur has a strong belief in their own ability and ideas to convince others such as banks to lend to them (1).

Explain how the following two sections of a business plan could help 8 Ashanti when starting her business.

• market research
• human resources Award 1 mark for how each section a business plan could help Ashanti (max 2). Award a maximum of 3 additional marks for each explanation of the section of a business plan and how could help Ashanti – one of which must be applied to this context. Market research
• Able to identify the needs of the market as being targeted at a specific age group – so inventory is more likely to be attractive to this market – sales are likely to be higher
• Market research helps to identify that there is sufficient demand for the products – as there may be a gap in the market – shows that the business is more likely to be successful
• To help set prices – at a level that will be suitable for the target market – and to be more competitive with other businesses
• To help gain a bank loan – to show that the new business is likely to have the demand to be successful – to be able to repay any loan she takes out
• To help identify competitor behaviour – to find out about the range of products available – so she can differentiate the clothes she sells Human resources
• To estimate how many people need to be employed – to ensure all tasks are completed – so that the business can operate efficiently
• To be able to calculate the cost of wages to be paid by Ashanti - to pay the employees a competitive rate – so she will budget the correct amount for the business to pay
• To identify the skills needed by employees – so that the employees can carry out their tasks correctly – not make mistakes
• Helps decide if Ashanti needs a manager – to run the business when she isn’t there – so that she doesn’t have to close Notes:
• This question is about planning for the future rather than what has been done.
• The business will sell rather than produce clothes.
• Do not award functions of market research or human resources.
• For market research it is the effectiveness that should be discussed rather than the process. For example: Market research will help YC to identify the market as being targeted at a specific age group (1) this will mean products are more likely to be attractive to this market (1) and sales are likely to be higher (1) making the start-up clothes shop more likely to succeed (app). Application could include: clothes; clothes shop; sole trader; target market aged 16–30; $20 000; 3/4 employees; 40% are in age group 16–30; use competitive pricing method; use social media; economic growth predicted to be 4%; information from Appendix 3.

Explain four ways to measure the size of KE. 8 Award 1 mark for each way of measuring size (max 4). Award a maximum of 1 additional mark for each explanation of the way which must be applied to this context.

• Number of people employed – it employs a large number of people at 10 000
• Value of sales – it has a large current value of output at $90m per year
• Capital employed – it is a public limited company
• Volume of output– it has an output of 20 million units produced each year For example: Number of people employed (1) KE has at a high number at 10 000 employees (app). Notes:
• Do not award number of factories, profit, type of business. amount of machinery or value of shares. Application might include: cooking pots/equipment; employs 10 000 people; public limited company; output of 20 million cooking pots; value of output is $90m/$180m; sells in the home country; competitive market; numerical information from Appendix 1 and 3.

Explain four reasons why a business might remain small. 8 Award 1 mark for each reason why the business might remain small (max 4). Award a maximum of 1 additional mark for each explanation. There are no application marks available for this question. Relevant reasons might include the following.

• The type of industry a business operates in – if the business is in the personal customer service sector, then customers would receive individual attention.
• Market size – the business may not have sufficient customers to grow larger.
• Owner’s objectives – they may feel they lack the management skills to run a larger business.
• Access to and availability of capital – if it is difficult to gain access to enough capital then the business may not be able to grow even if the owners wanted to.
• Market domination – some industries are dominated by large businesses that benefit from economies of scale making it very difficult for small businesses to compete with them.
• Owner wants to keep a close relationship with customers – builds customer loyalty. For example: Market size (1) the business may not have sufficient customers to grow larger. (1)

Consider the advantages and disadvantages of the following two 12 methods of growth CTD could use. Which method of growth should CTD use? Justify your answer.

• setting up a new café
• taking over a competitor’s café Level Description Marks Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both methods of growth. 3 Well-justified recommendation. 9–12 Candidates discussing both methods of growth in detail, in context and with a well-justified recommendation including why the alternative was rejected should be rewarded with the top marks in the band. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one method of growth. 2 5–8 Judgement with some justification / some evaluation of choice made. Candidates discussing in detail both methods of growth and applying it to the case should be rewarded with the top marks in the band. Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss methods of growth with little / no explanation. 1 1–4 Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both methods of growth in context should be rewarded with the top marks in the band. 0 No creditable response 0 Recommendation Justification might include:
• CTD should open its own café so Nadia can recruit the employees herself and the reputation for high- quality in the café will be maintained. If she took over a competitor’s café there may be conflict between employees, resulting in lower efficiency.
• CTD should take over a competitor’s café as then it will already be set up and can operate straight away. There will not be a delay by having to find a suitable site or recruit new employees to make desserts in the café, so revenue should increase immediately.

Consider the following three economies of scale for LB. Which 12 economy of scale is likely to have benefited LB the most? Justify your answer.

• Financial
• Purchasing
• Managerial Level Description Marks 3 Sound application of knowledge and understanding of 9–12 relevant business concepts using appropriate terminology. Detailed discussion of two or more economies of scale. Well-justified conclusion. Candidates discussing all three economies of scale, in context and with a well-justified conclusion, including why the alternative economies of scale were rejected, should be rewarded with the top marks in the band. 2 Sound application of knowledge and understanding of 5–8 relevant business concepts using appropriate terminology. Detailed discussion of at least one economy of scale. Judgement with some justification / some evaluation of choice made. Candidates discussing in detail two or more economies of scale and applying these to the case should be rewarded with the top marks in the band. 1 Limited application of knowledge and understanding 1–4 of relevant business concepts. Limited ability to discuss the economies of scale with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining all three economies of scale in context should be rewarded with the top marks in the band. 0 No creditable response. 0 Relevant points might include: Financial • Raise finance more easily and cheaply – as lower risk of not repaying debts due to larger size of business
• Banks may offer lower interest rates – lower costs of borrowing for the expansion of the large business than if it was a smaller business Purchasing • Bulk buy components – discounts / cheaper prices for bulk purchases – reduces average / unit cost of components
• May be able to lower prices – as average cost of each product is lower – becomes more competitive – increases sales of bathroom products – revenue increases Managerial • Specialist managers can be employed – better at their jobs / more knowledgeable as only carried out this task – e.g. marketing manager knows best place to advertise to be more cost efficient
• Able to attract the most talented managers – more efficient in manufacturing luxury bathroom products Conclusion Justification might include:
• Financial economies of scale will have the greatest effect as LB plans to expand and build a new factory in another country and will probably need to raise some of the finance by borrowing. This will keep down the repayment costs of expanding. LB is already producing on a large scale so the increased benefits from the purchasing and managerial economies may be limited leaving financial economies giving the biggest reduction in unit costs.
• Purchasing economies of scale will have the greatest effect on LB’s average costs as it produces bathroom products on a large scale so discounts on components will reduce unit costs by a significant amount, increasing gross profit and profit.
• Managerial economies of scale will have the biggest effect on unit costs as all managers will be experienced in producing showers and baths and are specialists in their areas leading to efficiencies in all departments of the business.

Explain four ways a business plan could help Kathryn. 8 Award 1 mark for each relevant way (max 4). Award 1 additional mark for each explanation of the way applied to this context. Relevant ways might include:

• To help gain a bank loan/overdraft – to open the new shop
• To help give the business a sense of purpose and direction – selling wedding flowers
• To calculate the costs of setting up the business – in this niche market
• To predict cash flow problems – when deciding the source of finance for working capital
• To help identify if there is sufficient demand for the product
• To help set prices – for the high-quality products
• To help identify the skills / type of employees needed – to prepare the flowers
• To help choose the promotional methods to use
• To help allocate resources For example: To help with an application for a bank loan (1) in order to open the new flower shop (app). Application could include: new shop/third shop; 2 shops; flowers; source of finance required for working capital; weddings; bride/groom; ribbons; reputation for high quality; contribute to sustainable development; targets a niche market; 4/8 employees at each shop; bride; average price paid is $2000; supplies purchased each day; supplies are fresh; uses job production; small business; marketing mix for the new shop.

Explain four reasons why new businesses are at a greater risk of failing 8 than existing businesses. Award 1 mark for each relevant reason (max 4). Award a maximum of 1 additional mark for each explanation. There are no application marks available for this question. Relevant reasons might include:

• Lacks finance – liquidity/cash flow problems
• Poor planning – lack of experience / may not have a business plan
• May lack management knowledge – lacks efficiency / not competitive / higher costs
• Inadequate research – no effective market research / not identified customer needs
• Lack of demand / poor quality product – cannot pay for costs from sales revenue
• Difficulties entering a new market – does not have brand loyalty / there is high competition in the market
• Difficulty competing with larger established firms in the market – as cannot benefit from economies of scale
• Overexpansion – tries to grow too quickly at the start
• Unable to respond quickly enough to changes in the external influences – for example not responding to increase in online sales For example: Lacks finance (1) may not have sufficient liquidity to pay current liabilities (1).