1.1.2 risk and reward Flashcards
*Risk:
business failure, financial loss, lack of security
*Reward:
business success, profit, independence
Business
failure
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
For example Blockbuster failed
to take up the Netflix offer as
they had no digital strategy
What is the chance of failure in
a new start-up?
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.
Financial risks
Starting a business can be a
financial risk for the owner
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
Lack of security
If 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
Business rewards
Not everyone defines reward the same way. For
some it might be seeing a new venture grow and
succeed. For others it may be conquering the
unknown and striking out on their own
Business success
This may mean; awards,
fame, survival, growth or
making more money than
they would working for
someone else
Keep all the profit
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
Independence
Independence
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
Many people would like to have this degree of control in their
working lives, which motivates them to start their own business
Patisserie Valerie
Well-known French themed
cafes has gone into
administration
71 loss making cafes have closed
900 members of staff have been
made redundant
Risky business
Homebase
Woolworths
BHS
Staples
Toys R Us
