Why start a business?

The skill involved in wanting to start and run a business is called enterprise. The individual who sets up their own business is called an entrepreneur.

There are several reasons why entrepreneurs are willing to take a calculated risk and set up a business. Possible motives include:

• Making a profit. A business does this by selling items at a price that more than covers the costs of production. Owners keep the profit as a reward for risk-taking and enterprise.
• The satisfaction that comes from setting up a successful business and being independent.
• Being able to make a difference by offering a service to the community such as a charity shop or hospice.

A new business needs its own name and a product. The challenge is to make goods and services that satisfy customers, are competitive and sell at a price that more than covers costs.

Taking a calculated risk

A new business starts out with few, if any, customers and is likely to face competition from existing firms. To succeed it needs to plan its launch carefully and work out how to create a competitive advantage over its rivals. To gain this advantage, it needs to offer a product which customers prefer to a rival's product.

Setting up a business involves risks and reward. Profit is the reward for risk-taking. Losses are the penalty of business failure.

An owner may decide to close a business if losses are being made, or if the level of profit is not enough to make trading risks or hours worked worthwhile.

A business plan

Most small businesses have very limited resources. Research is costly and can seem like a poor use of time. Some entrepreneurs ignore planning…