2.1 Business failure Flashcards
What is business failure
It is the inability of a business to continue to operate
Why do buisnesses fail
Numerous reasons including falling demand, increased competetion, weak marketing
Are new or established business more prone to closing down
New
How can having a diversified product range help prevent business failure
If a product is performing badly they can discontinue it and focus on their successes. If their dont have a wide product range they wont have products to fall back on
Reasons for failure
Internal factors - those created by the business
External factors - those beyond the control of the business
These can be further broken into:
Financial reasons - relating to the availability and use of cash
Non-Financial reasons - such as poor management, lack of resources, marketing, external enviroment
Financial internal factors for business failure
Liqiudity - poor financial management and lack of forward planning, may lead to cash flow problems
Poor accouting - such as badly kept records/errors in recording can mean money/cash flow is not being closely monitored
https://www.bbc.co.uk/news/business-43275605
Non-financial internal factors for business failure
Management error - in a fast moving market, clear and skilled leadership is crucial
Wrong stratergy - the business loses touch with the market and its customers, ignoring the need to innovate, market orientation and market research
Lack of investment - too much short term profit taking and not enough investment for the future
Poor marketing – getting all aspects of the marketing mix right is crucial incorrect pricing, advertising or poor distribution are just some of the causes
Failed explansion/ overexpansion
Non-financial internal factors for business failure
Consumer tastes – over a longer time period the demand for some products and services decrease
Competition – businesses that do not adapt when customer preferences change or when competition develops new or better products will face falling demand
Supplier problems
Government regulations
Natural phenomena/disasters
Financial internal factors for business failure
Exchange rates – a floating exchange rate means the value of a currency changes constantly and can have an impact on those businesses that export or import
Recession – some businesses are prone to recessionary impact, especially those that face income Elastic demand for their products
Lack of finance – reluctance of financial institutions to lend. Loans dry up in a crisis
Interest rates – although currently low they can change and increase borrowing costs as well as affect consumer spending
Why can liquidity cause business failure
Where the busienss runs out of cash so cant buy raw materials, pay workers or continue to market
This could also come from a lack of planning, or lack of startup capital
How can traits in the owner lead to business failure?
They may display poor leadership skills, make poor decisions - money, marketing, pricing.
How can changing economical enviroment cause business failure
The economy could enter a recession so people spend less, interests rates rise and they have to pay more money
How can competition cause business failure
New firms could enter the market and if its a large firm they may find they can compete.
A change in trends and fasion a firm may find what they sell is no longer relevelent.
Also tech is progressing quickly so firms need to quick innovating.
