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Flip to reveal answersState one financial challenge faced by new businesses.
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All 20 Flashcards — Challenges of a new business
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Question
State one financial challenge faced by new businesses.
Answer
Lack of capital/funding to start or grow.
💡 Hint
Money shortage.
Question
Why are established competitors a challenge for new businesses?
Answer
They often have loyal customers, strong brands, and economies of scale that allow lower prices.
💡 Hint
Loyalty + scale.
Question
State one operational challenge for new businesses.
Answer
Finding reliable suppliers.
💡 Hint
Suppliers affect quality and timing.
Question
Name two categories of challenges new businesses face.
Answer
Financial challenges and market/competition challenges (also personal, operational, and legal).
💡 Hint
Think categories.
Question
What is meant by cash flow problems?
Answer
Cash flow problems occur when cash inflows are insufficient to pay cash outflows on time, even if the business is profitable.
💡 Hint
Timing of cash.
Question
Why is cash flow often the biggest financial threat to start-ups?
Answer
Because running out of cash stops the business paying bills, even if sales look strong on paper.
💡 Hint
Cash timing kills.
Question
What is meant by difficulty building brand awareness?
Answer
New businesses may struggle to get noticed by customers, so sales grow slowly and marketing costs can be high.
💡 Hint
Hard to be known.
Question
Why is recruiting skilled employees a challenge for start-ups?
Answer
They may not afford high wages/benefits and have less job security than established firms.
💡 Hint
Hard to attract talent.
Question
State one personal challenge of entrepreneurship.
Answer
Long working hours and stress (also poor work-life balance).
💡 Hint
Personal pressure.
Question
Why is finding a target market a challenge for start-ups?
Answer
Without clear targeting, promotion is inefficient and the product may not match customer needs, reducing sales.
💡 Hint
No target = wasted marketing.
Question
Give one example of a legal/regulatory requirement a business must comply with.
Answer
Health and safety regulations (also tax rules, employment law, licenses/permits).
💡 Hint
Compliance matters.
Question
Why can it be hard for start-ups to get bank loans?
Answer
They often have no track record, limited collateral, and higher perceived risk for lenders.
💡 Hint
No history = risky.
Question
Give one example of personal financial risk for an entrepreneur.
Answer
The entrepreneur may lose personal savings invested in the business if it fails.
💡 Hint
Owner bears risk.
Question
What is price competition and why is it a challenge?
Answer
Price competition is when rivals lower prices; start-ups may not afford low margins because costs per unit are higher.
💡 Hint
Small firms have higher unit costs.
Question
Give one operational challenge and one legal challenge.
Answer
Operational: recruiting staff. Legal: complying with tax and employment laws.
💡 Hint
One from each bucket.
Question
What is meant by protecting intellectual property (IP)?
Answer
Protecting IP means securing legal rights over ideas/creations (e.g., brand name, designs) to prevent copying.
💡 Hint
Prevent imitation.
Question
Exam tip: When discussing challenges, what should you add to score higher?
Answer
A practical way the entrepreneur can reduce or manage the challenge (e.g., business plan, research, advice).
💡 Hint
Challenge + solution.
Question
How can entrepreneurs reduce operational and legal risks?
Answer
By using planning and professional advice (accountants/lawyers/mentors) and setting up reliable systems early.
💡 Hint
Advice + systems.
Question
Give one reason changing market conditions can harm start-ups.
Answer
Demand, costs, or trends can shift quickly, and start-ups may lack resources to adapt fast.
💡 Hint
Low flexibility/resources.
Question
Why can “unexpected costs” be dangerous for new businesses?
Answer
Start-ups have limited cash buffers, so unexpected expenses can quickly cause cash flow crises.
💡 Hint
Low reserves.
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Full study notes for Challenges of a new business
Topic 1.1 hub
What is a business?
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