2.3.3 Business Failure

Question 1

Business Failure:

Answer 1

This is when business falls into administration. The business no longer makes profits or has enough cash to pay its debts.

Question 2

Risks/Causes that may lead to business failure for start up business:

Answer 2

-comp respond aggressively to block success- barriers to entry eg undercut prices.
-diseconomies of scale, business growth may accelerate too quick- fail to manage costs/cash flow
-poor market research/unrealistic plan-lack of experience- isnt responsive to market needs

Question 3

Financial Risks/Causes leading to business failure for established business

Answer 3

financial reasons;
-poor management of cash flow-ineffective planning of costs and revenue for working capital eg wage costs=loss of employees
-increase in costs due to economical factors like inflation eg supply expenses increase
-inadequate financing when a debt, loss of customer occurs eg short term draft for long term investment

Question 4

Non Financial Risks/Causes leading to business failure for established business:

Answer 4

-lack of management control eg excessive marketing costs-fail to understand costs/customers.
-external shocks like changes in legislations impact demand/increase costs
-increase in competition - distribute customers-strategies like eos or undercut prices maintain cash flow
-changes in customer preference- boston matrix where product may be cash cow/dog due to inability to be innovative and meet needs.