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Discuss two possible challenges associated with starting a new business. - Leaving Cert Business - Question A - 2011
Question A
Discuss two possible challenges associated with starting a new business.
Worked Solution & Example Answer:Discuss two possible challenges associated with starting a new business. - Leaving Cert Business - Question A - 2011
Step 1
Raising Finance/Capital
Answer
One significant challenge when starting a new business is raising sufficient finance or capital. Entrepreneurs often need to secure various types of funding, such as short-term loans for initial expenses, medium-term leasing for equipment, or long-term financing for purchasing property. Managing cash flow effectively is crucial, as the business must ensure that it can meet its financial obligations, including loan repayments, while also covering operational costs. Failure to effectively raise or manage capital can jeopardize the business's survival in its early stages.
Step 2
Ownership Option
Answer
Another challenge involves choosing the appropriate ownership structure for the business. Options such as sole proprietorship, partnership, or private limited company each come with distinct implications regarding liability, taxation, and operational control. Entrepreneurs must carefully weigh the benefits and drawbacks of each option. For instance, while a sole trader retains complete control, the risk exposure is higher, whereas a partnership can dilute ownership, but individuals can share the responsibilities and capitalize on each other's strengths.