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

This guide covers section 1.3, Enterprise, business growth and size, of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029. It follows the syllabus order: 1.3.1 to 1.3.4. All candidates study the same content. For quick recall use the revision notes, then test yourself with the practice questions. The course hub and the printable checklist track what you have covered, and the free diagnostics show where to start.

All businesses in this guide are invented.

What this section covers

Syllabus point	What you must be able to do
1.3.1 Enterprise and entrepreneurship	Describe the characteristics of successful entrepreneurs; know the purpose and key elements of a business plan and why it matters; explain why and how governments support start-ups
1.3.2 Measuring business size	Use and compare methods of measuring size; explain the problems of measuring it
1.3.3 Growth and staying small	Explain why owners want growth; internal and external growth; advantages, disadvantages and problems; why some firms stay small
1.3.4 Success and failure	Explain why businesses succeed or fail

The command words used in this syllabus include state, identify, define, outline, explain, calculate, justify and consider. Questions test knowledge (AO1), application to a given business (AO2), analysis (AO3) and evaluation (AO4). Application (AO2) carries a large share of the marks, so always tie a point back to the business in front of you.

1.3.1 Enterprise and entrepreneurship

An entrepreneur is a person who takes the risk of starting and running a business. Enterprise is the activity of doing this.

Characteristics of successful entrepreneurs

The syllabus asks for the characteristics of successful entrepreneurs, without fixing a list. The ones you can use confidently are:

• Risk-taking. They put their own money and time in with no guarantee of a return.
• Innovation. They spot a gap or a better way to do something and act on it.
• Determination and resilience. They keep going after setbacks such as a lost customer or a rejected loan.
• Hard work and commitment. Early on, the owner often does several jobs.
• Self-confidence and leadership. They persuade staff, suppliers and lenders to back them.
• Good decision-making and organisation. They plan money, time and people sensibly.

In an exam, name the trait, then show it in the case. “Dara left a secure job and used her savings, so she is a risk-taker” earns more than the bare word.

The business plan

A business plan is a document that sets out what a new or growing business intends to do and how. The syllabus lists these key elements:

Element	What it contains
Overview/summary	A short description of the business and its idea
Objectives	What the owner wants to achieve, for example a sales target
Resources	Premises, equipment and materials needed
Market research	Who the customers are, how big the market is, who the competitors are
Marketing	Product, price, promotion and place decisions
Finance	Start-up costs, sources of finance, expected revenue and costs
People	Who will run the business and how many staff are needed
Operations	How goods or services will be produced and delivered

Why a plan is important. It forces the owner to think through problems before spending money. It gives a bank or investor evidence that the idea is sound, which helps in raising finance. Its objectives give everyone a target to measure progress against. A plan does not guarantee success: it rests on forecasts, and forecasts can be wrong.

Worked example 1: using the plan. Dara Okoye wants to open Harkwell Bakery, a small shop selling bread to commuters. Her plan’s finance section shows start-up costs of £24,000 for an oven, a counter and the first stock. She will put in £9,000 of savings, receive a £6,000 grant and take a £9,000 low-cost loan.

1. Check the sources add up: 9,000 + 6,000 + 9,000 = £24,000. The plan is fully funded.
2. Share from her own savings: 9,000 ÷ 24,000 × 100 = 37.5%.
3. Share that does not need to be repaid (the grant): 6,000 ÷ 24,000 × 100 = 25%.

The market research section would back up her sales forecast, and the marketing section would explain why commuters will choose her shop. A lender reading the plan can see how the loan is covered.

Why governments support business start-ups

New businesses matter to a country’s economy. Governments may want to:

• create jobs and so reduce unemployment;
• raise tax revenue, because new firms and their staff pay taxes once established;
• increase competition, which can lead to better quality and lower prices for consumers;
• encourage innovation and new products;
• support economic growth and local development.

How governments support start-ups

Method	How it helps the new firm
Grants	Money that does not have to be repaid
Advice	Free or cheap guidance on planning, law and finance
Low-cost loans	Borrowing at a lower interest rate than a bank would offer
Training schemes	Skills for the owner and workers

When asked “how”, name the method and say what it does. When asked “why”, give the benefit to the country, not to the business.

1.3.2 The methods and problems of measuring business size

Size matters because it affects how a business is run, how it is financed and how it compares with rivals. The syllabus gives these methods:

Method	What it measures	Typical limitation
Number of people employed	How many workers	Ignores machines; part-time and full-time are not equal
Value of output/sales	Revenue from sales in money terms	Prices and inflation change the figure
Volume of output/sales	Number of units made or sold	Hard to compare different products
Capital employed	The money invested in the business	Asset values can be hard to judge

A standard form of capital employed is total assets less current liabilities, so it shows the long-term finance in the business. This is the usual textbook form rather than a wording given in the syllabus.

Profit is not a method of measuring business size. A small firm can earn a high profit and a very large one can make a loss. Do not offer profit as an answer.

Problems when measuring size

• Different industries. A software firm can have few staff and large sales. A farm can have many workers and low sales. One method may make one firm look big and another small.
• Capital-intensive and labour-intensive firms. A factory with many machines may employ few people.
• Value versus volume. A jeweller sells few items of high value; a bread maker sells thousands of cheap ones.
• Changing prices and exchange rates. Sales value can rise only because of price increases.
• Part-time, seasonal and outsourced workers. Headcount may not reflect work done.

Worked example 2: two methods give two answers. Cullerton Textiles employs 420 people and had sales revenue of £8.4 million. Pennywick Toys employs 35 people and had sales revenue of £7.0 million.

1. By employees, Cullerton is 420 ÷ 35 = 12 times larger.
2. By sales revenue, Cullerton is 8.4 ÷ 7.0 = 1.2 times larger.
3. Sales per employee (the standard form is sales revenue ÷ employees): Cullerton £8,400,000 ÷ 420 = £20,000; Pennywick £7,000,000 ÷ 35 = £200,000.

Conclusion: Cullerton is much bigger by number employed but only slightly bigger by sales revenue. Pennywick uses far less labour for each pound of sales. The best answer says which method suits the purpose, and that using more than one gives a fairer picture.

1.3.3 Why some businesses grow and others remain small

Why owners may want to grow

• Higher profit from greater sales.
• Larger market share, which gives more influence over prices and suppliers.
• Lower average costs per unit, because buying and producing in larger amounts is often cheaper.
• Spreading risk by selling more products or in more places, so one failure does less harm.
• Status and personal ambition, and greater security against being taken over.

Internal growth

Internal (organic) growth comes from the business’s own resources, not from joining with another firm. The syllabus examples are developing new products and developing new markets. A business can also open more outlets or raise output with its own money.

Worked example 3. Ravenhall Cycles raised sales revenue from £2.5 million to £3.1 million by launching a children’s range (a new product) and selling online in a neighbouring country (a new market).

• Increase = 3.1 − 2.5 = £0.6 million.
• Percentage growth = 0.6 ÷ 2.5 × 100 = 24%.

Advantages: the owner keeps control and growth is steady. Disadvantages: it is slow, it needs finance from profits or loans, and new products can fail.

External growth

External growth means joining with another business.

• A merger happens when two firms agree to combine as a single business.
• A takeover is when one firm buys enough of another to control it. It may be agreed or opposed by the target’s owners.

Type	Meaning	Example
Horizontal integration	Joining firms at the same stage of the same industry	Mossgrove Garden Centre merges with another garden centre
Vertical integration	Joining firms at different stages of the supply chain	A baker takes over a flour mill

The standard sub-types are backward (towards suppliers) and forward (towards retailers or customers).

Worked example 4. Mossgrove Garden Centre has 6% of its local market. It merges with a rival that has 9%. Combined share = 6 + 9 = 15%, assuming no customers are lost. This is horizontal integration. Competition falls and costs can be shared, but staff may be made redundant and cultures may clash.

Advantages of external growth	Disadvantages of external growth
Fast increase in size and market share	Often expensive; may need large loans
Gains the other firm’s customers, skills and brands	Managers may struggle to run the larger firm
Vertical integration can secure supplies or outlets	Conflicts and job losses can lower morale
Horizontal integration removes a competitor	Customers may dislike the change

Problems linked to growth

• Cash flow strain, because growth costs money before it brings money in.
• Management difficulty. Owners find it harder to supervise and keep control.
• Communication problems in larger organisations.
• Higher average costs if the firm becomes too big to manage well.
• Lower quality or service as the business stretches.
• Finance risk if growth is paid for by borrowing.

Why some businesses remain small

• The market is small or specialised, for example a niche craft product.
• The owner prefers control and a manageable workload.
• Lack of finance or reluctance to take risks.
• Personal service is the selling point and cannot be copied at scale.
• The owner is content with the income and lifestyle.

1.3.4 Why some businesses succeed and others fail

Factor	Helps success when	Leads to failure when
Management skills	Managers plan, lead and control costs	Poor decisions or weak control
Availability of finance	Funds cover start-up and early losses	Cash runs out
Suitability of product	Product fits customer needs	Customers do not want it
Demand for products	Demand is strong and steady	Demand falls
Changes in the economy	Incomes rise; costs are stable	Recession cuts spending
Level of competition	Few close rivals	Strong rivals cut prices or copy the product

Worked example 5. Stainmore Joinery makes bespoke kitchens. Its owner won large orders but did not plan cash. Materials were paid for weeks before customers paid, so the firm could not pay a supplier and stopped trading. The factors are management skills (poor cash planning) and availability of finance. The product was suitable and demand was good, so failure was not caused by those.

Common errors

• Giving profit as a way to measure size.
• Listing business plan headings without saying what each one contains.
• Describing government support from the firm’s point of view when the question asks why the government wants it.
• Confusing a merger with a takeover, or horizontal with vertical integration.
• Giving only advantages when the question asks you to justify or consider.

Frequently asked questions

What are the characteristics of a successful entrepreneur? Common characteristics are risk-taking, innovation, determination and resilience, hard work, self-confidence and leadership, and good decision-making and organization. In an exam, name the trait and show it in the case.

How can business size be measured? Methods include the number of people employed, the value of output or sales, the volume of output or sales, and capital employed. Each has a limitation, so different methods can give different answers.

What is internal growth? Internal (organic) growth comes from the business’s own resources, such as new products, new markets or new outlets. The owner keeps control and growth is steady, but it is slow and needs finance.

Why do some businesses fail? Failure is linked to poor management skills, finance running out, a product customers do not want, falling demand, changes in the economy such as recession, and strong competition.

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.