1.1.2 Risks and rewards

Question 1

What is the impact of reward on business activity?

Answer 1

business success, profit, independence

Question 2

What is the impact of risk on business activity?

Answer 2

business failure, financial loss, lack of security

Question 3

Business failure

Answer 3

If a business fails to plan for the future it may risk losing out to competitors
A business must have a clear strategy and plan if it is to survive in a today’s dynamic business world

Question 4

What is the chance of failure in a new start-up?

Answer 4

20% of small businesses fail in their
first year
30% of small business fail in their
second year
50% of small businesses fail after five
years in business
70% of small business owners fail in
their 10th year in business.

Question 5

Financial risks

Answer 5

The owner may put their own cash and other assets (e.g. a van) into a business
If the business is sole trader or partnership then they have “unlimited liability” which means they could lose their
personal assets to pay the business debts

Question 6

Lack of security

Answer 6

an entrepreneur has a regular job, and they decide to leave that job to open their own business this is a huge risk
They may have a mortgage, a car and other bills to pay
Also there may be insecurity of sales with falling consumer incomes

Question 7

Whats the definition of business rewards?

Answer 7

A business reward is a benefit that it brings to the owner e.g. better working conditions

Question 8

Business success

Answer 8

The rewards of a good business is success
This may mean; awards, fame, survival, growth or making more money than they would be working for someone else

Question 9

Profit=?

Answer 9

Profit = Total revenue – Total costs
A reward of setting up your own business is you get to keep all the profit that the business makes
In time equipment may break or get old and you may need to invest some of your profit back into the business
If you take on a business partner you may also need to share the profits with them

Question 10

What is independence?

Answer 10

A reward of setting up your own business is that you could be your own boss
Being your own boss means you get to make the major decisions in the business
You can also change the business if you want to