（a）Explain four reasons why new businesses are at a greater risk of failing than existing businesses． Reason 1： . . . Reason 2： . . . Reason 3： . . . Reason 4： . . .
Exam No：0450_m25_qp_22 Year：2025 Question No：1
Answer:
Award 1 mark for each relevant reason (max 4).
Award a maximum of 1 additional mark for each explanation.
There are no application marks available for this question.
Relevant reasons might include:
- Lacks finance - liquidity/cash flow problems
- Poor planning - lack of experience / may not have a business plan
- May lack management knowledge - lacks efficiency / not competitive / higher costs
- Inadequate research - no effective market research / not identified customer needs
- Lack of demand / poor quality product - cannot pay for costs from sales revenue
- Difficulties entering a new market - does not have brand loyalty / there is high competition in the market
- Difficulty competing with larger established firms in the market - as cannot benefit from economies of scale
- Overexpansion - tries to grow too quickly at the start
- Unable to respond quickly enough to changes in the external influences for example not responding to increase in online sales
For example: Lacks finance (1) may not have sufficient liquidity to pay current liabilities (1).
Award a maximum of 1 additional mark for each explanation.
There are no application marks available for this question.
Relevant reasons might include:
- Lacks finance - liquidity/cash flow problems
- Poor planning - lack of experience / may not have a business plan
- May lack management knowledge - lacks efficiency / not competitive / higher costs
- Inadequate research - no effective market research / not identified customer needs
- Lack of demand / poor quality product - cannot pay for costs from sales revenue
- Difficulties entering a new market - does not have brand loyalty / there is high competition in the market
- Difficulty competing with larger established firms in the market - as cannot benefit from economies of scale
- Overexpansion - tries to grow too quickly at the start
- Unable to respond quickly enough to changes in the external influences for example not responding to increase in online sales
For example: Lacks finance (1) may not have sufficient liquidity to pay current liabilities (1).
Knowledge points:
1.3.1.1. Characteristics of successful entrepreneurs
1.3.1.2. Contents of a business plan and how business plans assist entrepreneurs
1.3.1.3. Why and how governments support business start-ups, e.g. grants, training schemes
1.3.2.1. Methods of measuring business size, e.g. number of people employed, value of output, capital employed (profit is not a method of measuring business size)
1.3.2.2. Limitations of methods of measuring business size
1.3.3.1. Why the owners of a business may want to expand the business
1.3.3.2. Different ways in which businesses can grow, e.g. internal/external
1.3.3.3. Problems linked to business growth and how these might be overcome
1.3.3.4. Why some businesses remain small
1.3.4.1. Causes of business failure, e.g. lack of management skills, changes in the business environment, liquidity problems
1.3.4.2. Why new businesses are at a greater risk of failing
Solution:
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