The purpose and nature of businesses: Reasons for starting a business

The idea

People start businesses for a mixture of financial and non-financial reasons. Common motives include the desire to be your own boss, to keep the profits you generate, to pursue a passion or turn a hobby into income, to fill a gap in the market, to gain flexibility and control over working hours, to earn more money than in employment, to create a legacy or provide for family, or because redundancy or unemployment leaves few alternatives. Some entrepreneurs are motivated by solving a social or environmental problem. For example, a person made redundant might start a gardening service to use existing skills, earn income and gain independence. The reasons often overlap, and they influence the legal structure, objectives and risks the new business takes on.

What earns the marks

• Identifies financial reasons such as earning a profit, increasing income, or keeping all profits rather than paying them to an employer.
• Identifies non-financial reasons such as independence, being your own boss, pursuing a passion, or gaining flexibility.
• Explains reasons linked to market opportunity, such as spotting a gap in the market or identifying unmet customer needs.
• Explains reasons linked to personal circumstances, such as redundancy, unemployment or wanting a better work-life balance.
• Uses a relevant example to show how a reason for starting a business can affect later decisions, such as a social enterprise choosing to reinvest profits.

Common mistakes and how to put them right

• Assuming everyone starts a business solely to become rich.

  Put it right: Many are motivated by independence, passion, flexibility or social aims.

• Listing reasons without explaining them.

  Put it right: Develop each reason by stating why it matters to the entrepreneur and what it leads to.

• Confusing a reason for starting with a business objective.

  Put it right: A reason is the underlying motivation, while an objective is a measurable target such as survival in the first year.

Exam tips

• Choose two or three distinct reasons and explain each one rather than listing many briefly.
• Link each reason to a consequence for the business, such as how wanting independence might lead an entrepreneur to remain a sole trader.
• Use a real or hypothetical example to show understanding, but keep the focus on the reason and its effect.