AQA AS Level Business Studies 5131

U N IT 1 EX A M R EV IS IO N

H otTopics

Enterprise and Entrepreneurs

Business Plans

Franchises

Sources of Business Ideas

Adding Value

Market Research

Factors Affecting Demand

Market Segmentation (Geographic; Demographic and

Limitations)

Social Enterprises (not for profit businesses)

Sources of Finance (especially internal sources e.g. Sale of

assets etc)

Technology and Business Start-Ups (e.g. Tele-working)

Flexible Working

Cash Flow Forecasts

Setting Budgets

Exam iners Report 2011

Candidates analytical skills continued to be

relatively superficial in the longer questions.

In some questions candidates would have

benefited from using evidence from the case

study to support the development of their
arguments, rather than adopting rather
generic responses.
Many candidates need to extend the depth of

their evaluation.

U nit 1 M ark Allocations

2-3 marks
4-7 marks

Knowledge
Knowledge and

Application
8-12 marks Knowledge, Application
and
Analysis
12-18 marks Knowledge,
Application,
Analysis and
Evaluation

Exam Skills -Application

Key trigger words to look for:
Explain
Outline
Calculate

ALWAYS try to relate your answer to

the business in the case material.

Just mentioning the business name is
NOT application!

Application -Exam ple

Darren had the idea of setting up Dazzas Motor Repairs Ltd after he was made
redundant as a chef last year. Darren was fed up of having to travel miles
out of town to get his car serviced and felt that there was a gap in the market.
Darren carried out some research by asking local residents if they would
support his idea and he also worked with an accountant friend to create
a detailed business plan. Darren knew that he would need a loan of 20,000
to set up the business and had the option of either approaching the local
bank or raising funds from his personal savings.
Darren was interested to learn that he could also buy a franchise option for
15,000. The franchise was Marks Motors Ltd and they had been very
successful in recent years in Scotland and were now wanting to expand into
England.

Application Practice Q uestion

Explain two factors that Darren might
have to
consider in his choice of finance for the
business.
[6 Marks]

Application M odelAnsw er
Finance is the capital available to a business and can be
obtained from external and internal sources. The local bank
would probably offer Darren a bank loan and this would mean
that Darren would have to pay this back with interest. Darren
would have to ensure that he could afford the repayments
because the bank could repossess the business if he defaulted
on the loan. If Darren was to use his own savings then he would
not have to repay this amount of money but there is a large
opportunity cost to consider. Given his lack of relevant business
experience in the motor industry could he afford to ignore the
financial help and support provided by the bank?

Application Practice Q uestion

Outline two issues for Darren if he
decided to
buy into the Marks Motors Ltd
franchise.
[6 Marks]

Application M odelAnsw er
A franchise is where a business (franchisor) sells the rights to
trade under their name to another individual or business
(franchisee). Darren needs to be aware that Marks Motors Ltd
hold no experience of the English market. Given Darrens
current lack of knowledge in this industry (he was a chef), can he
afford to take such a large risk? However, the franchise is very
successful and they would provide Darren with the training,
advice and support that he needed to be successful. The cost of
the franchise agreement would also be 5000 lower than setting
up on his own meaning that Darrens level of financial risk is
lowered.

EXAM TIP
Look for the paragraph in the case

study that talks about the topic in

the question.
Look for any additional tables or

diagrams that might contain

additional information you could use
to support an answer.
If a table has been included in the

Exam Skills -Analysis

Key trigger words to look for:
Analyse...
Examine...
Explain why...

Use relevant business theory in any

answer.
This is where you LINK points
together.
The more you develop your point and

Analysis -Exam ple

Darren is told by the bank that his market research is too
limited and that more is required before a loan could be
considered. Darren conducts a more detailed survey and
receives over 70 replies from local residents near where he
intends to start the business. He discovers that over 60% of
his potential customers belong to social groups A and B and
that 72% of replies were from people aged 40-65.
Convinced by the findings of his new research, Darren decides
to focus his business upon this segment of the market. He now
intends to charge higher prices than he originally proposed in his
business plan to take advantage of the higher PDI of residents
and
to exploit the lack of competition in the local area.

Analysis Practice Q uestion

Examine whether Darrens decision to
segment
his target market was the correct one.
[10 Marks]

Analysis M odelAnsw er
Market segmentation is the breaking down of larger market into smaller
groups that share common characteristics e.g. age. The problem with
using demographic segmentation to decide the target customer base for his
business, is that he risks alienating potential customers who are not in social
class A or B, and who are not aged between 40-65. As a new business, he
cannot afford to lose potential customers which would harm his cash flow
and
maybe leave him needing an additional loan or bank overdraft. His sample
size of 75 is also too small to base such an important decision upon
and this is very important as customer tastes and fashions are constantly
changing.

Analysis M odelAnsw er
However, the use of segmentation analysis has allowed Darren to identify
the most profitable market segment. Knowing that people in social class
A
and B are likely to use his business, means that his decision to charge a
higher
price than he originally intended should prove to be the correct one. This
means that he can increase his levels of sales revenue and avoid cash
flow
problems. It has also allowed Darren to better understand his customer
and
he can therefore offer services more likely to be of interest to people aged
between 40-65 years old which should again mean more sales and an
increase
in profits.

EXAM TIP
Less is more in terms of analysis. The

examiner is looking for quality not quantity!

Plan out your answer to all analysis questions.
Develop TWO points in favour, ONE against (or

vice versa) and then consider wider issues and

make a final recommendation.
Use relevant business theory and link points

together.

Exam Skills -Evaluation

Key trigger words to look for:
Evaluate...
Discuss...
To what extent...
....justify your view.

Which argument is the strongest and why?

Is there anything else the business should

consider? Why?
How reliable was the evidence? Why do you
question its reliability? Give strong reasons.

Evaluation -Exam ple

Darren plans to develop the business by offering a personalised at-home
repair service. Through investment in new technology, he hopes to be able to
respond to break-downs and car service requests faster than any competitor.
Through using telecommunications he is also saving money by not needing to
operate from a central business location, allowing him to run the business from
his own home.
Despite all of his planning and additional research, the Bank Manager remains
unconvinced and believes that the business might fail. He says that 3 garage
repair firms have failed in the area in recent years and this is why there is so
little competition. The Bank Manager also reveals the news that one of the
major high-street repair chains have spotted this gap and have submitted
plans of their own to start in business within the next 3 months.

Evaluation Practice Q uestion

Was the Bank Manager correct in his
view that
Darrens business was likely to fail?
Justify your
view.
[15 Marks]

USE ALL OF THE INFORMATION TO HELP

YOU.

Evaluation M odelAnsw er
The Bank Manager is justified in believing Darrens small business idea to be a
high risk venture. With Darrens lack of experience in the repair market, his
initial estimate for customers are likely to be optimistic and therefore
there is a strong chance that his cash inflow will be much lower than he
thought. Indeed, Darren even had to be asked to carry out more research into
his market and then only an extra 75 people replied! His lack of experience
might also mean that the quality of service provided is not as good and cause
negative word of mouth from his customers which will also harm sales.
This risk is made worse by the news of the larger more established competitor
planning to open a branch within the next 3 months. Customers are more
likely to shop with them instead of him as they know them better, all of which
will lower Darrens cash inflow and make his business more likely to fail.

Evaluation M odelAnsw er
However, the main reason for small business failure is financial. Given that
Darren is able to finance the business through personal savings, then this
suggests that he should not be in immediate danger and he could always seek
to take out a short-term bank loan or a bank overdraft. His business plan was
also detailed which meant that he had carefully considered each aspect of the
business and this would reduce levels of risk.
Overall, the Bank Manager is right but only in the short-term. If Darren is able
to establish good customer relations and therefore loyalty, he should be able
to provide a more personalised service than his more established competitor.
With no other rivals, there is probably room in the market for both businesses.
A lot though depends upon Darren gaining the relevant experience and
expertise required to be competitive. Just because 3 other businesses have
failed does not mean that Darrens business will also be a failure.

Evaluation Practice Q uestion

To what extent will Darrens decision to
invest
in new technology help to guarantee
the
success of his business?
[15 Marks]

Try and answer this question on your own.