1.1 Risk and Reward

Question 1

What are the main risks that an entrepreneur takes when they start up a business?

Answer 1

1. Business failure
2. Financial Loss
3. Lack of security

Question 2

Outline one major cause of why businesses fail. (In terms of money)

Answer 2

Problems with cash-flow.

Customers may pay their bills too slow of the lack of customers causes business having not enough money to by essential supplies or pay their wages.

This leads to the business having to borrow money and cash flow problems cam can cause business to fail.

Question 3

What other reason has an impact on cash flow?

Answer 3

Unexpected costs.

For example, if key employees leave the business must find a replacement coating thousands of pounds.

This is due to the new employee not working as efficiently and having to spend money on new recruitment.

Question 4

State another reason that can cause business failure.

Except for cash flow and unexpected costs.

Answer 4

An unexpected drop in sales revenue.

Question 5

How can unexpected drop in sales revenue occur?

Answer 5

Recession- the sales revenue of a luxury goods may drop as customers stop spending their money on non-essentials.

Behaviour of supplies- the sales revenue of a local title shop could be affected by the closure of a factory that makes most of the tiles that the shop sells.

Competition- the sales revenue of a local independent petrol station could suffer if a nearby supermarket cuts its fuel price.

Question 6

What are the different types of risks that can lead to financial loss?

Answer 6

Competitive risk- the risk that a business’s competitor might do better than the business such as spending more on marketing and attracting more sales.

technical risks- the risk that a product of service might not work as intended such as a faulty charger which increased the risk of fire or electric shocks for users and resulted in the prosecution of a retailer.

Financial risks- the risks that a business does not have the right amount of investment such as not having enough money to launch a product in a way that attracts customer’s attention.

Question 7

How does the lack of security impose a risk for entrepreneurs?

Answer 7

1. Do not have a regular wage
2. Does not offer job security
3. Can also lead to financial security
4. The lack of security can have detrimental effects on an entrepreneurs health. All business decisions must be decided by them.

Question 8

What may motivate an entrepreneur to set up a business?

Answer 8

1. Rewarded by the thrill of founding a business that succeeds and produces goods that people want to buy
2. Driven to make profit
3. They may simple just like working for themselves and having the independence

Question 9

What are the three main rewards in starting up a business?

Answer 9

1. Business success
2. Profit
3. Independence

Question 10

How does Business success act as an reward?

Answer 10

1. Motivated from building a business out of nothing.
2. Their enterprise provides jobs for their employees
3. The joy of providing a product or service that customers really love.
4. The value of receiving industry awards

Question 11

How does independence act as an reward?

Answer 11

1. Motivated of having the opportunity of working for themselves rather than for someone else.
2. Having independence and to make your own decisions is the key reason of starting up a business
3. Being independent means they are more likely to take risks.