2.3.3 - Business Failure

Question 1

What happens when a business fails?

Answer 1

A business fails when it can’t cover costs and shuts down while owing debts. This often happens due to insufficient cash to pay liabilities.

Question 2

How can internal financial mismanagement lead to failure?

Answer 2

Poor working capital management, inefficiency, or expensive finance can lead to insufficient funds to sustain the business.

Question 3

What non-financial internal issues can cause failure?

Answer 3

Issues like poor communication, weak marketing, or lack of innovation reduce efficiency and sales, risking failure.

Question 4

What external financial factors can lead to failure?

Answer 4

Economic downturns and exchange rate changes can lower demand, especially for luxury goods or exports.

Question 5

What non-financial external issues threaten businesses?

Answer 5

Competitors’ actions, changing consumer trends, or poor supplier and customer communication can harm revenue and reputation.

Question 6

Why do causes of failure vary?

Answer 6

The main causes depend on factors like market type, product price sensitivity, and company size.

Question 7

How do communication issues affect large businesses?

Answer 7

Large and fast-growing firms are more likely to fail from poor communication than smaller businesses.