Quantitative and Qualitative Factors Influencing a Decision to Become a Full-Time Entrepreneur | AQA Q5, Paper 3 2018

Here is a suggested response to Q5 of AQA A-Level Business Paper 3 (2018) exploring the quantitative and qualitative factors that might influence a choice to become a full-time entrepreneur.

Making the leap from the relative safety of employment into running your own business is a difficult choice that involves more than just financial factors.

However, starting with quantitative factors, a key issue for Jack will be how the profit he might earn from being a full-time entrepreneur compares with his current salary (and other benefits). My calculations for the forecast profit next year from Appendix C are below:

Contribution:

From online: 2,000 units x £15 (£24 - £9) = £30,000

From retail: 33,000 units x £6 (£15 - £9) = £198,000

Total contribution: £30,000 + £297,000 = £228,000

Less fixed costs of £200,000

= Forecast profit for next year of £28,000

So, Jack’s forecast suggests he might achieve a profit that is basically the same as the salary he currently earns from work (since he may have other financial benefits from his job such as cheap loans, pension etc).

Do these figures support Jack running his business full-time? The £28,000 figure meets Jack’s rule of being more than £25,000, but only just! It is important to remember that they are based on estimates, so the actual profit could be much lower (or higher) than £28,000. For example, Jack’s plan is to employ 8 sales people – he may find that his initial recruits are not as effective as expected in terms of making sales to retailers; alternatively, he may recruit fewer than 8 (thereby lowering fixed costs) but they prove to be really effective in selling to retailers, thereby leading to higher contribution than forecast.

The uncertainty of quantitative factors such as forecast profit may mean that, in the end, qualitative factors are key in helping Jack to decide whether to go full-time. Jack would be trading-off the relative security of employment against the many potential benefits of running his own business – such as “being his own boss” (freedom of decision-making), having the time to focus on something he is passionate about. Running a business gives many people a buzz – does working in banking do the same thing? Jack would need t consider whether he has the personal characteristics to succeed as an entrepreneur. What is his attitude to risk (having worked so far in risk-averse industry like banking)? How resilient is he to the inevitable knocks he’ll face trying to grow both online and retail sales? Can he handle managing a team of salespeople? Of course, he may conclude that the best way to find out is to try!

Ultimately the decision is Jack’s. However, if I was advising him, I would recommend that Jack does give up his job to become a full-time entrepreneur. Growing a business requires dedication – it will be hard for Jack to fulfil the potential of the business whilst also working in the bank. Jack will learn a lot about himself by giving it a go – essential experience for any entrepreneur. And whilst the quantitative data suggests that the decision is “marginal” compared with his current salary, he should be able to manage the forecast increase in fixed costs so that profit next year is achieved and, perhaps, even beaten. And, of course, Jack could always go back into employment if things don’t work out as hoped.