2.3.3 Business Failure

Question 1

What is Business Failure?

Answer 1

When a Business CEASES to Trade or when a Business Doesn’t Trade in a Profitable Way

Question 2

What are 5 INTERNAL Causes of BUSINESS FAILURE

Answer 2

• LACK of PLANNING
• CASH-FLOW PROBLEMS
• LACK of FUNDS
• MARKETING PROBLEMS
• FAILURE to INNOVATE

Question 3

How is LACK of PLANNING an Internal Cause of Business Failure

Answer 3

Provides a Roadmap, Shows a CLEAR DIRECTION for the Development of a Business and HELPS to Identify Potential PROBLEMS IN ADVANCE , business is Better Prepared

Financial Planning is Key

Question 4

How is CASH FLOW PROBLEMS an Internal Cause of Business Failure

Answer 4

Run Out of Cash
Many FOCUS TOO MUCH on Profit and NEGLECT the Importance of CASH

Run Short of Cash through - Overtrading, Overborrowing

Question 5

How is MARKETING PROBLEMS an Internal Cause of Business Failure

Answer 5

The USE of INAPPROPRIATE PRICING STRATEGIES could mean that Prices may be Too Low or Too High.
Business may INVEST TOO HEAVILY In Extravagant or Inappropriate Promotional CAMPAIGNS

Question 6

How is FAILURE to INNOVATE an Internal Cause of Business Failure

Answer 6

RESISTING the NEED to INNOVATE and NOT CHANGING With the TIMES
May be TOO RELUCTANT to Adopt New Technology
E.g. Kodak

Question 7

What are 3 EXTERNAL Causes of BUSINESS FAILURE

Answer 7

• ECONOMIC RECESSION
• EXCHANGE RATES / STRONG POUND
• COMPETITION

Question 8

How is ECONOMIC RECESSION an External Cause of Business Failure

Answer 8

• As a Country Enters Recession, CUSTOMERS Start to SAVE Rather than Buy
• PUT OFF Decisions to BUY LARGE EXPENSIVE Items and they also SWITCH to Buying MORE INFERIOR GOODS
• these Decisions Mean that Some Businesses Fail in a Recession

Question 9

How is EXCHANGE RATES/STRONG POUND an External Cause of Business Failure

Answer 9

• businesses that IMPORT and EXPORT can be EFFECTED
• e.g. a business that Relies Heavily on the Export Market will Suffer if the Exchange Rate Rises Sharply
• HIGH EXCHANGE RATE mean that OVERSEAS CUSTOMERS have to PAY MORE for UK Goods and Services
• REDUCES DEMAND and Force marginal firms into Administration

Question 10

How is COMPETITION an External Cause of Business Failure

Answer 10

• the STRENGTH and SUCCESS of Businesses RIVALRY can PUSH OTHERS OUT of Business
• may Charge Lower Prices as their Costs are Lower
• they may be a Large, More Powerful Company and use Destroyer ( Predatory ) Pricing to Drive Smaller Rivals out of the Market