The factors of production are the resources or inputs used in the production process. The combination of the factors of production result in economic activity. Three of the factors of production are land, labour and capital. The fourth factor, enterprise, is different from the other three as it involves the organisation of the other resources — of land, labour and capital. This ‘organising’ function of enterprise helps to decide some of the answers to the fundamental economic questions, i.e. what is to be produced, how should it be produced, and for whom should it be produced?
Entrepreneurs (who carry out the enterprise function) are the people who take risks — the personal financial risks — when starting up, running and expanding a private business. The risk to the entrepreneur can be substantial. Entrepreneurs operating either as sole traders or as part of an ordinary partnership can risk losing their personal possessions if the business they have created fails, leaving unpaid business debts. Even a limited company — where the owners’ personal resources are not at risk through the concept of limited liability — risks losing its entire original investment if the business fails. Given that most startups will require a significant investment from the entrepreneur’s private resources, there are clear risks taken in any business start-up.
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