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 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 an opportunity cost.

Mark scheme

Marking points from the official mark scheme (May/June 2022). The mark or mark type is shown in brackets.

1. [2] A person who takes the risk for a new business venture
2. [2] An individual who takes the financial risk of starting and managing a new business
3. [1] Partial definition e.g. person who starts up a business
4. [2] The next best alternative given up by choosing another item
5. [2] The benefit that could have been gained from an alternative use of the same resource
6. [2] A benefit, profit or value that a firm has to give up in order to achieve something else
7. [1] Partial definition e.g. what you have to give up / forgo
8. [1] Lack of / cannot get finance / cash flow problems / lack of liquidity
9. [1] Level of competition / lack customer loyalty / lack of customers / demand / sales
10. [1] Poor planning / no business plan / lack of objectives
11. [1] Lack of (managerial/business) experience/skills/knowledge
12. [1] Inadequate/no market research
13. [1] No reputation / low brand awareness / no brand image
14. [1] Own savings [k] from his time working in his other job [app] as no need to repay/no interest to pay [an]
15. [1] Borrow from friends/family [k] such as his sister [app] as may give long time to repay [an]
16. [1] (Bank) loan [k] for this window cleaning business [app] as could provide all the money at once [an]
17. [1] Overdraft [k] can arrange quickly/only pay interest when used [an]
18. [1] Government grant [k] as may be willing to support entrepreneurs [app] as no interest/no need to repay [an]
19. [1] Crowdfunding [k] to raise the $700 [app] so no interest to repay [an]
20. [1] Micro-finance [k] as does not need security to obtain [an]
21. [K] Share workload/responsibility [k] which could allow time for each partner to focus on different business activities [an]
22. [K] More ideas/skills [k] which could help make the business more competitive [an]
23. [K] Can share any potential loss/risks [k]
24. [K] Unlimited liability [k] personal possessions at risk if unable to pay business debts [an]
25. [K] Risk of disagreements / slow decision making [k] so less responsive to changes in customer demand [an]
26. [K] Must share any profits made [k]
27. [K] It's simple/very little paperwork required to set up [an]
28. [K] Require limited start-up capital [an]
29. [K] Make all the decisions / has total control of business [an]
30. [K] Keep all the profit [an]
31. [K] Limited access to finance [an]
32. [K] Benefit from limited liability
33. [K] More paperwork/legal requirement to set up/operate [an]
34. 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].