1.1.2 Risk and Reward Flashcards
Risk
The possibility that something may go wrong, and the enterprise will have lower than anticipated profits or experience a loss
Calculated Risk
is where a chance of exposure to loss or injury is undertaken having carefully assessed the advantages and disadvantages of taking that risk
Risks an entrepreneur may face
Lack of Security, financial loss, business failure
Lack of Security
The loss of security is one of the main risks of leaving employment to start a new business venture
Risks of lack of Security
Entrepreneur does not have a guaranteed income.
Loss of sick, holiday and maternity pay.
Loss of set work hours
Paying bills could be difficult because of missing payments
Business Failure
Business failure is the ultimate risk for any business regardless of size or scale – they simply run out of funds and cannot pay for everything they need to
Risk of Financial Loss
Starting a new business venture requires financial investment – they will risk losing any capital investment that the owner has put in personally (if unlimited liability)
Large Business Failure
Business failure occurs when a business does not have sufficient finances to meet current debts
Reasons for Business Failure
Lack of demand for the product or service
Poor management of cash-flow
Failing to respond to changing
market conditions
External Factors
Factors that are out of a busineses control
Rewards of starting a business
Profit, Non-Financial Rewards, Independence
Profit
when revenue exceeds total costs and is the reward for the risks entrepreneurs take
Non-Financial Rewards
Rewards such as awards, market share, ect
Independence
Choosing Hours, Make key decisions
Philanthropists
A philanthropist promotes the welfare of others by making generous donations to good causes
