Business in the Real World: Location and Business Plans
Choosing where to set up is one of the biggest early decisions a business makes, and a business plan is the document that pulls all those early decisions together. For AQA GCSE Business 8132 you need to know the factors that influence location and the purpose, contents and limits of business plans.
Factors influencing business location
The main factors are:
- Proximity to the market - shops and cafes need passing customers (footfall), while some services must be close to clients.
- Labour - businesses need enough workers with the right skills nearby.
- Materials - factories may locate near suppliers or ports to cut transport costs.
- Competitors - some businesses avoid rivals, while others cluster together to share customers.
- Costs - rent and wages vary hugely between city centres and out-of-town sites.
Aldi shows how location supports strategy. With UK sales of around £17.9 billion in 2023, Aldi targets sites with cheaper land, easy parking and gaps left by rival supermarkets, and it aims to grow from roughly 1,000 to 1,500 UK stores. The rise of e-commerce has made physical location less important for some firms, since a website can serve customers anywhere.
What a business plan contains and why it matters
A business plan is a document that sets out what a new or growing business will do and how it will succeed. A typical plan includes the business idea and objectives, the target market and market research findings, the marketing mix, details of the owners and staff, and financial forecasts such as a cash-flow forecast and expected costs, revenue and profit.
The two main purposes are to obtain finance and to reduce risk. A bank will not lend to a start-up without evidence that the owner has thought about customers, competitors and repayments. Writing the plan also forces the entrepreneur to test the idea on paper first: if the forecast shows the business running out of cash in month four, that problem can be fixed before any money is spent.
Benefits and limitations of business plans
The benefits are clear. Planning helps the owner set measurable objectives, spot problems early, persuade lenders and investors, and keep the business on track once trading starts. Comparing actual results against the plan shows quickly whether sales or costs are off target.
However, a plan is only as good as the assumptions behind it. Market research may be limited, costs can rise unexpectedly, and competitors react in ways no spreadsheet predicts. A plan can also give false confidence or make an owner slow to change direction when the market moves. For the exam, remember the balanced view: a business plan reduces risk but never removes it, and successful owners update their plans regularly rather than writing them once and filing them away.
Key terms
Practice questions
State two factors a business might consider when choosing a location. [2 marks]
Model answer guidance: One factor is the cost of rent at the site. Another is the level of footfall, meaning how many potential customers pass by. Nearness to suppliers or skilled workers could also be considered.
Explain one reason a bank asks to see a business plan before lending to a start-up. [3 marks]
Model answer guidance: A bank wants evidence that the loan will be repaid. The business plan shows the financial forecasts, including expected revenue, costs and cash flow, so the bank can judge whether the business is likely to survive. If the plan is weak or unrealistic, the bank can refuse the loan and avoid losing its money.
Analyse one way the growth of e-commerce has changed location decisions for retailers. [6 marks]
Model answer guidance: E-commerce lets a retailer sell nationwide from a website, so an expensive high-street site with high footfall matters less than it used to. This means a business can choose a cheap warehouse near motorway links instead, cutting rent and making delivery faster. The result is lower fixed costs, which allows lower prices or higher margins, although the retailer then depends on delivery firms and its website rather than passing trade.
Analyse how choosing a poor location could affect a small independent shop. [9 marks]
Model answer guidance: A site with low footfall means fewer people discover the shop, so revenue is likely to be below forecast from the start. At the same time, rent and other fixed costs still have to be paid, which squeezes cash flow and may force the owner to use an overdraft. If the problem continues, the shop may have to spend heavily on advertising to attract customers or relocate, both of which cost money a small business may not have, and in the worst case the business fails before it becomes known.
A new cafe owner is choosing between a high-street site and a cheaper unit in an out-of-town retail park. Recommend which site the owner should choose. Justify your answer. [12 marks]
Model answer guidance: The high street offers strong footfall from shoppers and office workers, which suits a cafe because most custom is impulse-based, but rents and business rates are much higher. The retail park is cheaper and has free parking, yet customers there usually visit large stores with a purpose and may not linger for coffee. The best choice depends on the cafe's target market and finances: a cafe relying on passing trade and takeaway sales should pay extra for the high street, as Greggs and Costa do, because location drives its revenue. I would recommend the high-street site, provided the forecast shows the higher rent can still leave a reasonable profit.
Examiner tips
- When a question gives you a context, such as a cafe or a factory, pick location factors that fit that specific business rather than listing every factor you know.
- Remember that a business plan has two purposes examiners reward: securing finance and reducing risk. Link your answer to at least one of them.
- In recommendation questions, compare both options before choosing, and make your final choice depend on the context in the case material.
In The Business School simulation your students make these exact decisions in a live market against rival firms — every choice mapped to the specification. Free teacher demo, no installs, students join with a PIN.