The Risks of Starting Up a New Business Outweigh the Benefits - Essay Example

? The risks of starting up a new business outweigh the benefits UK has been one of the leading business locations in the world for decades. Expanding businesses used to target UK because of its open market with good supply of skilled labour, easy access to neighbouring regions, scope for research and development, and reasonable return on investment. However, the recent developments in Britain’s political economy show that the country currently does not have a very prospective business environment. Evidences suggest that unfavourable factors like a depressed economy, vague market conditions and financial struggles pose potential threat to the successful launch of a new business in the region. Admittedly, some very recent reports of Britain's Office for National Statistics indicate a hopeful improvement in the economic performance of the nation with regard to its GDP that showed ‘over 3 percent annual growth rate’ unlike other world economies (Schomber and Milliken). Although the 0.8 percent growth it showed between July and September ranks its fastest pace in more than three years, the employment growth has not yet showed significant improvement; and this makes the sustainability of the economic recovery uncertain. Hence, from an entrepreneur’s point of view, the risks of starting up a new business in UK in the current economic climate outweigh the benefits. Some experts believe that Britain’s economy is built on shaky foundations. To illustrate, as Elliot, the Guardian reporter points out, the economy is exceedingly depending on private, ‘and to a lesser extent to public borrowing’. He also says that the so called economic recovery is concentrated only in certain sectors and as a result, ‘manufacturing base is shrinking’ and the trade deficit is mounting. Obviously, all these reports reveal that UK economy currently is relying on a debt based recovery which will raise long term financial stability concerns. The growing rate of consumer borrowing is one of the symptoms of this economic crisis. Another point to mention here is that the highlighted GDP growth in fact does not add up for the country’s working class. For instance, over the past 12 months, the use of food banks has gone up by 170% in the nation, and still five million people in the UK are currently living in fuel poverty (Cresswell). The financial position of an economy can influence a company’s stability and sustainability. New businesses are highly vulnerable to risks related to the economic stability of the country in which it operates. New entrepreneurs often fail to plan financial projections or create good working environment. It is necessary for new businesses to determine if their product or service is strong enough to sustain the market completion and other challenges. Business owners with little knowledge in current trends and socio economic changes tend to fail in their venture. In other words, it is important to study the socio economic and political conditions of the business destination before commencing operation. Finding a new appropriate business is also a challenge in the new environment. It requires extensive research to determine the most relevant product and business concept in a competitive environment. One recent survey report reveals that 31% of the participants opined that finding a new business would be the major challenge for their organisations in 2013 ‘followed by rising costs (14%) and holding onto customers (13%)’ (MT Management). At this juncture, new entrepreneurs must be cautious about the current economic climate in the UK regardless of the recent improvements. This is because even Britain's big businesses have just started spending their cash piles after the recession. Although expansion is their higher priority, for the time being, their decisions seem to be an experiment. When it comes to new businesses, they usually confront insufficient cash flow, lack of expertise, and knowledge. Although new businesses fail due to a multitude of reasons, there are some common factors to point out. As mentioned earlier, the current economic conditions in the UK require detailed study and ongoing analysis to ensure its stability. Obviously, a new businessman is less likely to meet these challenges well. This inability will surely impede his business activity and strategic changes. Unfavourable economic conditions of the country will thrust an extra burden of incessant market study on his shoulder. Furthermore, a good business plan with clearly set targets and budget is essential for every business regardless of the industry or the size of the firm. However, in a volatile economy it is a difficult task for a new entrant to clearly define its long term and short term objectives and budget. As compared to new businesses, already established big firms can overcome such difficulties at lower cost and efforts. The new business, if it is a sole entrepreneurship will have to struggle a lot to address all these areas as such businesses lack workforce and experience. On the other hand, if the economic condition is favourable, a new business can easily enter the market where the risks pertaining are relatively lower. For instance, the business can easily raise working capital from financial institutions. The stability of the economy will enhance the overall productivity of various industries and vice versa. In such an environment, the consumer buying power will be high which will influence the growth a business positively. Conserving cash is important for every business and for a new business it is crucial, because when money is tight business may not be very smooth. At this juncture, restricting expenditure and watching credit control are very important aspects. As everyone knows 2012 was a difficult year for both private and public sectors in UK as the entire Europe zone had fallen into recession. And many experts believe that the conditions in 2013 will not be of great difference. The problem with continuing business in such an environment will force companies to struggle for generating revenues while keeping trade for paying down debts. Although many companies have outstanding credit management procedures, good credit control will leave their customers financially distressed. If these are the status of the big businesses in UK, obviously new businesses will have to suffer a lot since their initial stage. In total, UK’s current economic condition is not very favourable for starting a new business. Although the recent improvements found in certain sectors give hope, many economic reports force one to be sceptical about the claimed recovery. The arguments against the recovery-claims cannot be undermined since financial institutions have admitted the growing rate of consumer borrowing. Works Cited Cresswell, Luke. “The government's GDP growth figures do not add up for the working class”. The Guardian, 25 October 2013. Web 2 Nov 2013. http://www.theguardian.com/commentisfree/2013/oct/25/gdp-growth-economy-figures-working-class Elliot, Larry. “UK economic recovery built on shaky foundations – again”. The Guardian, 27 October 2013. Web 2 Nov 2013. http://www.theguardian.com/business/economics-blog/2013/oct/27/uk-economic-recovery-shaky-ground MT Management. “Finding New Business The 'Biggest Challenge' Facing Organisations In 2013” . 4 January 2013. Web 2 Nov 2013. http://www.managementtoday.co.uk/features/1165388/finding-new-business-biggest-challenge-facing-organisations-2013/ Schomberg, William and Milliken, David. “UK economy accelerates to fastest growth since 2010”. Reuters, Oct 25, 2013. Web 2 Nov 2013. http://uk.reuters.com/article/2013/10/25/uk-britain-economy-idUKBRE99O08O20131025 Read More