2.3.3 Business Failure

Question 1

What is business failure?

Answer 1

Business failure is when a business ceases to trade or when a business does not trade in a profitable way or when a business makes a terrible decision.

Question 2

What are the 4 internal causes of business failure?

Answer 2

1. ) Poor efficiency
2. ) Poor marketing
3. ) Failure to innovate
4. ) Bad management of working capital

Question 3

What are the 2 external causes of business failure?

Answer 3

1. ) Economic recession

2. ) Strong pound - reduced export demand

Question 4

2.) Poor marketing (example)

Answer 4

Sunny delight originally marketed as a healthy drink for kids, it was placed next to orange juice but was a totally artificial product.

Question 5

4.) Poor management of working capital

Answer 5

-Management of working capital is critical if a business is to survive.
-Working capital performance is a measure of efficiency that compares a businesses’ assets to it’s liabilities.
-Inability to manage cash flow is the most common reason for business failure.

Question 6

1.) Economic recession

Answer 6

-As a country enters economic recession, customers begin to save rather than buy.
-They put off decisions to purchase large expensive items + they also switch to buying more inferior goods.
-These buying decisions means that some businesses fail in a recession, whereas others might prosper.

Question 7

2.) Strong pound

Answer 7

-Strong pound means that manufacturing businesses who heavily export will be affected.
-It means their goods + products they manufacture will cost their customers more.
-Some businesses shift production overseas to counter this effect but not all can afford this move.