GCSE Business: Business in the Real World — Practice Questions

These are original questions written for Marlbridge, in the style and at the standard of the examination. They are not reproduced past-paper questions — examination boards hold copyright in their own papers. Use these alongside the official past papers available free from your board.

Related: Business in the Real World revision notes

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Section A

1. State two advantages and two disadvantages of being a sole trader. [4]

2. Explain the meaning of limited liability and why it matters to an investor. [3]

Section B

3. A growing bakery is deciding whether to become a private limited company.

(a) Explain two benefits of incorporating. [4] (b) Explain two drawbacks. [4]

4. Explain four factors a retailer should consider when choosing a location. [8]

5. Distinguish between organic and inorganic growth, and explain one advantage and one disadvantage of each. [8]

6. Evaluate whether profit should always be a business’s main aim. [9]

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Section C

7. A business’s aims and objectives can change as it develops.

(a) State how a new business’s objectives typically differ from those of an established business. [2]

(b) State two ways, other than profit, that a business’s success can be measured. [2]

8. An entrepreneur is writing a business plan before launching a new café.

(a) State three things a business plan typically contains. [3]

(b) Explain two reasons why writing a business plan is valuable, even for an entrepreneur who is self-funding and not seeking external finance. [4]

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Answers

1. Advantages: the owner keeps all the profit [1] and has complete control over decisions, so can react quickly [1]. Disadvantages: unlimited liability, so personal assets are at risk [1]; limited capital and no one to share the workload, so growth is constrained [1].

2. The owners’ liability for the business’s debts is limited to the amount they invested [1]; the business is a separate legal entity from its owners [1]. This matters because an investor knows their personal assets such as their home cannot be seized if the business fails, so they are more willing to invest [1].

3. (a) Limited liability protects the owners’ personal assets if the business fails [1] [1]. It becomes easier to raise capital, since shares can be sold to family, friends and investors, funding expansion [1] [1]. (b) There are legal formalities and costs — accounts must be filed publicly and audited, which is expensive and time-consuming [1] [1]. Ownership is diluted, so the original owner may lose some control over decisions if shares are sold widely [1] [1].

4. Any four, 2 marks each: Proximity to customers — a retailer needs high footfall, so a town centre or shopping centre generates more sales [1] [1]. Cost of premises — rent and rates in prime locations are high and must be covered by the extra sales generated [1] [1]. Competition — being near competitors may draw customers to the area, but also splits the market [1] [1]. Availability of labour — the location must have enough suitably skilled staff at an affordable wage [1] [1]. Transport links and parking — poor access deters customers and raises delivery costs [1] [1].

5. Organic (internal) growth means the business expands using its own resources, for example by opening new branches [1]. Inorganic (external) growth means growth through merger or takeover of another business [1]. Organic advantage: it is slower and easier to manage, so the culture and quality are maintained [1]. Organic disadvantage: it is slow, so rivals may capture the market first [1]. Inorganic advantage: it is fast, giving immediate market share, assets and expertise [1]. Inorganic disadvantage: it is expensive and risky, and clashes of culture and management often mean the expected savings never materialise [1] [1].

6. For profit as the main aim: profit is needed for survival and to reinvest in the business [1]; shareholders expect a return and may sell their shares or remove the directors if it is not delivered [1]; without profit the business cannot pay staff or suppliers in the long run [1]. Against: a new business may prioritise survival or cash flow over profit in its first years [1]; pursuing short-term profit can damage reputation, staff morale and customer loyalty, harming long-term profitability [1]; some businesses are social enterprises or charities whose aims are explicitly ethical or environmental [1]. Judgement: profit is necessary but not always the primary aim [1]; the appropriate objective depends on the stage of the business, its ownership and its values [1], and long-term profitability often depends on pursuing other aims such as quality and reputation first [1].

7. (a) A new business typically prioritises survival and building a customer base [1], while an established business may shift toward growth, profit maximisation, or social/environmental objectives [1].

(b) Any two: market share [1]; customer satisfaction [1]; ethical or environmental performance [1].

8. (a) Any three: a description of the business idea; the target market; how it will be marketed; its objectives; financial forecasts covering start-up costs, expected revenue and cash flow [3].

(b) It forces the entrepreneur to think through practical detail before committing money, reducing the risk of costly mistakes [2]; it also helps the entrepreneur judge for themselves whether the idea is financially viable, not only whether a lender or investor would see it that way [2].

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Where marks are usually lost

• Saying a sole trader “has no responsibilities”.
• Confusing limited liability with limited company status.
• Giving location factors without explaining the effect on the business.
• Not reaching a supported judgement in evaluation questions.
• Assuming a business’s objectives stay fixed rather than shifting as it develops.
• Listing business plan contents without explaining why writing one is valuable beyond raising finance.