Business and its environment
Domain 1 examines how businesses are created, structured and sized, how objectives are set, and how stakeholders and external change constrain decisions. AS questions usually apply these ideas to a short case, so each point needs a consequence, not just a label.
Core rules
- Enterprise combines land, labour, capital and enterprise, and earns profit for risk-bearing. Added value = sales revenue − cost of bought-in inputs; it funds wages, interest, tax and profit.
- Legal structure matters: a sole trader has unlimited liability and no separate legal personality; a private limited company has limited liability, continuity and greater disclosure and compliance costs. Franchises, co-operatives and social enterprises blend ownership and control differently.
- Growth can be organic or through horizontal, vertical or conglomerate integration. Economies of scale lower unit cost, but diseconomies of management and culture clash can raise it.
- Objectives may be profit, growth, survival or CSR; stakeholder groups have different, sometimes conflicting aims. Mendelow's power/interest matrix helps predict whose claims dominate.
- PESTLE factors matter through effects on demand, costs or risk: interest rates raise finance costs, exchange-rate appreciation hurts exporters, and regulation raises compliance costs.
Worked example
A café has revenue $500,000, non-wage costs $320,000 and wages $150,000, so profit is $30,000. A minimum-wage settlement raises the wage bill by 8%, or $12,000. Profit falls to $18,000 - a 40% fall - although the cost rise is only 2.4% of revenue. Reasoning: the thin 6% net margin magnifies the cost shock. To restore $30,000, the café needs $12,000 more contribution: a 2.4% price rise if demand is unchanged, or equivalent cost cuts. A price rise may reduce footfall, so the owner must judge elasticity, not just arithmetic.
Traps
Do not confuse revenue with profit, or unlimited liability with incorporated status. Naming PESTLE factors without a transmission mechanism earns little. Stakeholders are not a single interest. Horizontal integration is same-stage, not supplier–buyer. Growth is not automatically an objective if owners prefer control.