Business Studies · May / June 2022 · Paper 12 · Question 4

0450

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Tom wants to leave his job to become an entrepreneur. He and his sister plan to start a window cleaning business. Tom has been told that new businesses are at a greater risk of failure than 4 established businesses. Tom has to decide whether a partnership is a suitable form of business organisation for the new business. He has calculated the business will need $700 as start-up capital. Tom knows that every decision he makes will have an opportunity cost.

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4(a)[2]
Define ‘entrepreneur’. Award 2 marks for a full definition. Award 1 mark for a partial definition. A person who takes the risk for a new business venture [2]
OR An individual who takes the financial risk of starting and managing a new business [2]
Partial definition e.g. person who starts up a business [1]
2 For both marks must have idea of a person starting a new business, and that they take a risk to do this [+1].
4(b)[2]
Define ‘opportunity cost’. Award 2 marks for a full definition. Award 1 mark for a partial definition. The next best alternative given up by choosing another item [2]
OR The benefit that could have been gained from an alternative use of the same resource [2]
OR A benefit, profit or value that a firm has to give up in order to achieve something else [2]
Partial definition e.g. what you have to give up / forgo [1]
2 Do not award examples as this does not define the term. Notes
4(c)[4]
Identify four reasons why a new business might be at greater risk of failure than an established business. Award 1 mark for each relevant reason (max 4). Points might include:
Lack of / cannot get finance / cash flow problems / lack of liquidity
Level of competition / lack customer loyalty / lack of customers / demand / sales
Poor planning / no business plan / lack of objectives
Lack of (managerial/business) experience/skills/knowledge
Inadequate/no market research
No reputation / low brand awareness / no brand image Other appropriate responses should also be credited. 4 Only award the first four points given. Notes
4(d)[6]
Explain two suitable sources of start-up capital Tom’s business might use. Award 1 mark for identification of each relevant source of start-up capital (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include:
Own savings [k] from his time working in his other job [app] as no need to repay/no interest to pay [an]
Borrow from friends/family [k] such as his sister [app] as may give long time to repay [an]
(Bank) loan [k] for this window cleaning business [app] as could provide all the money at once [an]
Overdraft [k] can arrange quickly/only pay interest when used [an]
Government grant [k] as may be willing to support entrepreneurs [app] as no interest/no need to repay [an]
Crowdfunding [k] to raise the $700 [app] so no interest to repay [an]
Micro-finance [k] as does not need security to obtain [an] Other appropriate responses should also be credited. 6 To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
Window cleaning
$700
Wants to leave his job/other job
Sister
Partnership
Opportunity cost
Entrepreneur Other appropriate examples in context can still be credited. Do not award answers such as retained profit/profit or sell shares as these are not appropriate/available to a start-up. Notes
4(e)[6]
Do you think a partnership is the best form of business organisation for a new business? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for justified decision as to whether a partnership is the best form of business organisation for a new business. Points might include: Partnership:
Share workload/responsibility [k] which could allow time for each partner to focus on different business activities [an]
More ideas/skills [k] which could help make the business more competitive [an]
Can share any potential loss/risks [k]
Unlimited liability [k] personal possessions at risk if unable to pay business debts [an]
Risk of disagreements / slow decision making [k] so less responsive to changes in customer demand [an]
Must share any profits made [k] Other options might include: Sole traders [k]
It’s simple/very little paperwork required to set up [an]
Require limited start-up capital [an]
Make all the decisions / has total control of business [an]
Keep all the profit [an]
Limited access to finance [an] 6 This is a general question so there are no marks for application. Candidates can discuss other forms of business organisation, but evaluation must focus on whether a partnership is the best form. Notes Private limited company [k]
Benefit from limited liability
More paperwork/legal requirement to set up/operate [an] Other appropriate responses should also be credited. Justification might include: A partnership allows owners to share workload [k] which could allow time for each partner to specialise on certain activities to improve the business [an]. The main problem is unlimited liability [k] which means they could lose personal possessions if unable to pay business debts [an]. However, partnership is a better choice than starting up as a sole trader. While there is still unlimited liability, it is possible to share some of the risk with others if you can work together, then extra skills can help reduce potential problems [eval] which could increase the chances of success [eval].

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