Entrepreneurial Challenges That a New Venture Faces - Essay Example

Small Business Startup and Management Name Institution Entrepreneurial Challenges That a New Venture Faces One of the challenges that a new venture faces is the uncertainty of income. A new business rarely has new customers and it has a very small market share since is not yet known. The organisation has to invest on effective strategies of attracting more customers and increasing the level of brand awareness. For example, the business can allocate funds for offers (Thurik, 2003). The low customer base raises the uncertainty of the ability of the venture to make adequate revenue to cover the level of expenses. Another challenge that entrepreneurs face is the risk of losing the entire investment. The cost of maintaining a venture is considerably high. Some of the expenses include rent, labour, and office supplies. The entrepreneurs purchase commodities without the certainty of making sales. There is therefore a risk of having dead stock. The investment could then be used to cover the expenses. Lack of revenue could result to the expenditure of the entire investment on inventory that does not sell and the operation expenses. Business owners of a new venture face the challenge of working long hours and inputting hard work. The managers target at reducing the level of expenses such as labour. As a result, they have to undertake a wide range of activities, such as being the sales persons, marketers, accountants, and inventory managers. In order to handle all these responsibilities, they have to work for more hours (Volkmann et al., 2010). Thus, during the establishment of the business, the entrepreneurs have limited time to spend on other activities and personal life such as family and friends. The concentration on the business reduces the quality of life of the owner of the venture. A quality life entails numerous elements including good health, job security, and a balanced community life. Spending more time and working hard reduces the inability to socialize with other people besides customers and other business people. Working for more hours may have a negative effect on health since it changes one’s eating habits. Moreover, the uncertainty of the sustainability level of the business reduces job security (Sharma, 2012). Evidently, the entrepreneurs lead a lower quality of life until the venture generates adequate profits. The owner of the new venture mostly has the complete responsibility of running the business. For example, they are in charge of all the operations of the firm. As a result, they experience high stress levels. This may have a negative effect on their health and the quality of life. The stress level may reduce the quality of the decisions made concerning the business.Bottom of FormBottom of FormBottom of Form Bottom of Form The entrepreneurs in startup ventures further face the challenge of raising the capital that they need to finance the business. At the beginning of a business, an entrepreneur has to raise finances to cater for the needs of the venture. This often proves stressful to investors especially if the business requires a lot of money and the investor does not have a steady source of income or enough savings to meet the financial needs of the business. Discouragement is also part of the challenges that entrepreneurs of new businesses face. The business operation often takes a while to pick. Before the business picks and builds a customer base for itself, the management has to work hard and market the business aggressively. These efforts often go unrewarded thereby discouraging the business owners. In some cases, the businesspersons give up and invest in a new business idea while in other cases they give up completely on the idea of starting a family business. Sources of Finance in Entrepreneurial Startup One of the sources of income for a startup business is personal savings (Lasher, 2005). This type of financing involves the entrepreneurs using money that they have saved over the years from their jobs. This source is an advantage to use because it helps convince other investors that the entrepreneur believes in the business idea and thereby convinces them to invest in the business too. It therefore makes it easy for the entrepreneurs to attract both individual and corporate investors. The use of personal savings as a method of financing a new business venture is however a disadvantage because it involves the entrepreneur risking all his finances. If the business venture fails or takes long to thrive, the entrepreneur goes through a stressful period trying to raise funds to meet his or her personal expenses. The sources of finances in further include financing from family members and friends (Lasher, 2005). This method involves the entrepreneur asking for financial help from the loved ones in his or her life. The advantage of using this method of financing is the ease with which one has in convincing his or her loved ones to invest in his or her business idea. They do not require the entrepreneur to give a written business plan, which makes it very easy for the entrepreneur to make his or her pitch anywhere and without much restriction. The disadvantage of this source, on the other hand, is the fact that losing the money invested may damage the relationship that the entrepreneur has with the investors. The investor may think of the entrepreneur as a con artist who was only interested in stealing from him or her. Angels could also finance startup businesses. Angels are private investors that seek to help new entrepreneurs raise the capital required to meet the new venture’s financial needs (Scarborough, Cornwall & Zimmerer, 2016). The advantage of using this kind of source is the patience that these investors have. They do not pressure the businesspersons into repaying their money almost immediately after lending them. Instead, they wait for business to grow and yield reasonable profits. The disadvantage of using this type of source is the fact that an entrepreneur may take long before finding an angel willing to invest in his or her business since these angels get many requests to finance different businesses. New ventures could also get their finances from corporations. Many corporations in the world are interested in investing in newly started companies. This type of financing is an advantage in its expertise in marketing and strategic management. The corporations have people that are knowledgeable in business management. This knowledge could come in handy for the new entrepreneurs especially when dealing with unfamiliar tasks. The disadvantage of this source of funding however is the fact that the entrepreneur has to give up a share of the business to the investing corporation (Scarborough, Cornwall & Zimmerer, 2016). He or she is not a complete owner of the business and the corporation has a permanent position in the management of the business. An entrepreneur can also raise capital by getting a business partner (Lasher, 2005). Getting a business partner involves changing the nature of the business from sole proprietorship to partnership. The share of the business that the partner has is dependent on the share of the capital invested. This method is an advantage because the loss is shared between the two partners. Every partner receives a share of the loss incurred depending on the share that he or she owns in the business. Thus, the investor is not weighed down by the losses at the start of the business. The use of partners is a disadvantage because the entrepreneur is not the only managing partner and has to share the profits incurred with the partner. Startup ventures can further be financed through loans from commercial banks (Scarborough, Cornwall & Zimmerer, 2016). Commercial banks give either long-term or short-term loans. This source of financing is a disadvantage because the loans are to be repaid with interest and the entrepreneur has to give a collateral for that loan. Therefore, any entrepreneur that does not have collateral cannot get access to a loan. It is however an advantage because the bank does not claim a share of the business venture. Once the entrepreneur repays the given loan, any connection that his or her business has with that bank ends and the collateral that the bank had taken is given back. References Top of Form Sharma, K. C. (2012). Entrepreneurship development. New Delhi: Regal Publications. Bottom of Form Top of Form Thurik, R. (August 01, 2003). Entrepreneurship and Unemployment in the UK. Scottish Journal of Political Economy, 50 (3), 264-290. Top of Form Volkmann, C. K., Tokarski, K. O., & Grünhagen, M. (2010). Entrepreneurship in a European perspective: Concepts for the creation and growth of new ventures. Wiesbaden: Gabler. Top of Form Lasher, W. (2005). The perfect business plan made simple. New York: Broadway Books. Top of Form Scarborough, N. M., Cornwall, J. R., & Zimmerer, T. (2016). Essentials of entrepreneurship and small business management. Upper Saddle River: Pearson. Read More