IGCSE Business: Enterprise, business growth and size (Cambridge 0264) – Revision Notes

These are condensed notes for section 1.3, Enterprise, business growth and size, of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029. For full explanations and worked examples, read the study guide. When you are ready, try the practice questions. The course hub, the checklist lets you tick off points, and the free diagnostics show your weak spots.

Key definitions

Term	Meaning
Entrepreneur	A person who takes the risk of starting and running a business
Enterprise	The activity of starting and running a business, taking risks
Business plan	A document setting out what a business intends to do and how
Internal growth	Growth using the firm’s own resources, for example new products or markets
External growth	Growth by joining with another business
Merger	Two firms agree to combine as a single business
Takeover	One firm buys enough of another to control it
Horizontal integration	Joining firms at the same stage of the same industry
Vertical integration	Joining firms at different stages of the supply chain
Capital employed	The long-term finance in the business (standard form: total assets less current liabilities)

1.3.1 Enterprise and entrepreneurship

Characteristics of successful entrepreneurs: risk-taking, innovation, determination, hard work, self-confidence, leadership, good decisions.

Business plan: eight key elements. Learn them in this order.

1. Overview/summary
2. Objectives
3. Resources
4. Market research
5. Marketing
6. Finance
7. People
8. Operations

Why a plan matters:

• makes the owner think through problems before spending money;
• helps to persuade lenders and investors;
• sets targets to measure progress against;
• but it relies on forecasts, so it cannot guarantee success.

Why governments support start-ups: create jobs, reduce unemployment, raise tax revenue, increase competition, encourage innovation, support economic growth.

How governments support start-ups

Method	One-line effect
Grants	Money not repaid
Advice	Guidance on planning, finance and rules
Low-cost loans	Cheaper borrowing
Training schemes	Skills for owner and staff

Why versus how: “why” is about benefits to the country; “how” is the method used.

1.3.2 Measuring business size

Method	Measures	Weakness
Number of people employed	Workers	Ignores machines; part-time versus full-time
Value of output/sales	Money value	Affected by price changes
Volume of output/sales	Units	Hard to compare different products
Capital employed	Money invested	Asset values can be hard to judge

Profit is not a method of measuring business size.

Method in steps: choosing a size measure

1. Identify the industry (labour-intensive or capital-intensive).
2. Pick the measure that suits the question.
3. Note its weakness.
4. Where possible, use two measures and compare.

Useful calculation (standard form): sales per employee = sales revenue ÷ number of employees.

Worked reminder. Firm A: 60 employees, sales revenue £1.5 million. Firm B: 12 employees, sales revenue £1.2 million. Sales per employee: A = £25,000; B = £100,000. A is five times larger by employees (60 ÷ 12) but only 1.25 times larger by sales (1.5 ÷ 1.2).

Problems of measuring size

• Different industries give different answers.
• Capital-intensive firms have few workers.
• Value and volume can tell different stories.
• Inflation and exchange rates change sales values.
• Part-time, seasonal and outsourced staff blur headcount.

1.3.3 Growth and remaining small

Why owners want growth: more profit, larger market share, lower unit costs, spread risk, status, security.

Internal growth (own resources): new products, new markets, new outlets.

• Plus: control kept, steady, less risky.
• Minus: slow, needs finance, new products can fail.

External growth (joining another firm)

Method	Plus	Minus
Merger	Quick growth, shared costs and skills	Clashing cultures, job losses
Takeover	Quick growth, gains customers and brands	Expensive; may be resisted
Horizontal integration	Removes a rival; larger share	May reduce choice for customers
Vertical integration	Secures supply or outlets	Managers face unfamiliar stages of production

Standard sub-types of vertical integration: backward (towards suppliers) and forward (towards retailers).

Problems linked to growth: cash flow strain, harder management and control, poorer communication, rising average costs if too big, falling quality, borrowing risk.

Why some stay small: small or niche market, owner wants control, lack of finance, wish to avoid risk, personal service, content with lifestyle.

Method in steps: a growth recommendation

1. State the options (internal or external).
2. Give one advantage and one drawback for each, in context.
3. Weigh them against the firm’s finance, management and aims.
4. Reach a reasoned decision.

1.3.4 Success and failure

Factor	Success	Failure
Management skills	Planning, leadership	Poor decisions
Availability of finance	Funds for early losses	Cash runs out
Suitability of product	Meets needs	Not wanted
Demand for products	Strong	Falls
Changes in the economy	Rising incomes	Recession
Level of competition	Few close rivals	Strong rivals

Must-know distinctions

• Merger and takeover: agreed joining of two firms versus one firm gaining control of another.
• Horizontal and vertical: same stage versus different stages.
• Internal and external growth: own resources versus joining with another firm.
• Value and volume: money from sales versus number of units.
• Why and how of government support.

Linking points to the case

Application (AO2) carries a large share of the marks. Before you write, underline three facts in the case: the size of the business, its aim, and any money figure. Then use at least one in each paragraph. For example, a firm that wants to keep control suits internal growth, while a firm short of cash may struggle with a takeover.

Command words for this section

Command word	Meaning in the syllabus	What it means here
State	Express in clear terms	Give the point briefly, for example one characteristic
Identify	Name, select, recognise	Pick the element, method or type from a list or case
Define	Give precise meaning	Say exactly what a term such as takeover means
Calculate	Work out from given facts	Show the formula, the figures and the answer
Explain	Set out reasons, say why or how, with evidence	Point, reason, then link to the business
Justify	Support a case with evidence or argument	Weigh both sides, then reach a decision with reasons

Worked reminder: growth percentage. A firm grows from £5 million to £6.5 million. Increase = 1.5 million. Percentage growth = 1.5 ÷ 5 × 100 = 30%.

Worked reminder: share after a takeover. A takeover joins a firm with sales revenue of £3 million to one with £1 million. Combined = £4 million. The larger firm accounts for 3 ÷ 4 × 100 = 75% of the combined sales revenue.

Internal against external growth at a glance. Internal growth is slower, cheaper and keeps control. External growth is faster, costs more and brings the task of joining two businesses together.

Quick self-test

1. State two characteristics of a successful entrepreneur.
2. Identify four key elements of a business plan.
3. State one reason why a government supports start-ups.
4. Name one way a government can support a start-up.
5. Identify two ways of measuring business size.
6. Why is profit not a method of measuring size?
7. A company has 90 employees and sales revenue of £4.5 million. Calculate sales per employee.
8. Sales rose from £800,000 to £1,000,000. Calculate the percentage increase.
9. Define vertical integration.
10. A bakery buys a rival bakery in the next town. What type of integration is this?
11. State two reasons why a business might stay small.
12. Identify two reasons why a business might fail.

Answers

1. Any two of: risk-taking, innovation, determination, hard work, self-confidence, leadership.
2. Any four of: overview/summary, objectives, resources, market research, marketing, finance, people, operations.
3. For example: to create jobs, to raise tax revenue, or to increase competition.
4. Grants, advice, low-cost loans or training schemes.
5. Any two of: number of people employed, value of output/sales, volume of output/sales, capital employed.
6. A small firm can earn a high profit and a large firm can make a loss, so profit says little about size.
7. 4,500,000 ÷ 90 = £50,000 per employee.
8. (1,000,000 − 800,000) ÷ 800,000 × 100 = 25%.
9. Joining firms at different stages of the supply chain of the same industry.
10. Horizontal integration (same stage of the same industry).
11. For example: the market is small or niche, or the owner wants to keep control.
12. For example: poor management skills, shortage of finance, unsuitable product, falling demand, a recession, strong competition.

Where marks are usually lost

• Giving profit as a measure of business size.
• Naming a characteristic or element without saying what it means or showing it in the case.
• Answering “why does the government help” from the firm’s point of view.
• Mixing up merger, takeover, horizontal and vertical integration.
• Quoting one growth advantage without any link to the business named.
• Writing a list of problems of growth with no explanation of how each affects the firm.
• Giving a one-sided answer where the question says justify or consider.
• Forgetting units or to show the working in percentage and per-employee calculations.

Frequently asked questions

Why do governments support business start-ups? Governments support start-ups to create jobs and reduce unemployment, raise tax revenue, increase competition, encourage innovation and support economic growth. “Why” questions are about benefits to the country; “how” questions are about the method used.

What is the difference between a merger and a takeover? A merger is when two firms agree to combine as a single business. A takeover is when one firm buys enough of another to control it, which may be agreed or not.

What problems can growth cause for a business? Growth can strain cash flow, make management and control harder, cause communication problems, raise average costs if the firm becomes too big to manage well, lower quality or service, and add finance risk if growth is paid for by borrowing.

Why do some businesses stay small? A business may stay small because its market is small or niche, the owner prefers control, finance is lacking, personal service is its selling point, or the owner is content with the income and lifestyle.

Official syllabus

Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029, published by Cambridge University Press & Assessment (Cambridge International), section 1.3.