The purpose and nature of businesses: Basic functions and types of business

The idea

Every business carries out basic functions that turn inputs into outputs customers will pay for. These functions include operations (or production), marketing, finance and human resources. A start-up may have one person performing all functions, while a large multinational separates them into specialist departments. Businesses also come in different types based on size and scale: start-ups, SMEs (small and medium-sized enterprises), large, local, national, international and multinational. The type chosen affects how functions are organised. For example, a local SME might have a small team handling marketing, whereas a multinational will have a global marketing department. Understanding both functions and types helps explain why businesses behave differently and how they structure their operations.

What earns the marks

• Identifies the main business functions: operations or production, marketing, finance and human resources, explaining their roles.
• Explains that functions may be combined in a start-up or SME but divided into specialist departments in large businesses.
• Describes different types of business by size and scale: start-ups, SMEs, large, local, national, international and multinational.
• Compares business types using criteria such as scale of operations and geographical reach.
• Links the type of business to how the basic functions are carried out, for example a local start-up handling finance personally.
• Uses a relevant example, such as a local SME versus a multinational corporation.

Common mistakes and how to put them right

• Confusing types of business (start-ups, SMEs, large, local, national, international, multinational) with business ownership structures (sole traders, limited companies).

  Put it right: Types refer to size and scale, ownership refers to legal structure.

• Treating marketing as only advertising.

  Put it right: Marketing also covers market research, pricing, distribution and product decisions.

• Assuming all international businesses are multinationals.

  Put it right: An international business trades globally, but a multinational has physical operations or facilities in more than one country.

Exam tips

• Read the command word carefully: describe requires features, whereas explain requires reasons or consequences.
• Use a named or realistic business context to make function and type links concrete.
• When discussing types of business, ensure you refer to size (SME, large) or scale (local, national, multinational) rather than legal ownership.