2.3.3 Business Failure

Question 1

Give 4 examples of internal non financial reasons why a business may fail

Answer 1

1- Failure to innovate
2- poor leadership and management
3-Relying on a narrow customer base
4- Lack of planning

Question 2

Give 3 examples of internal financial reasons why a business may fail

Answer 2

-Become bankrupt
-Become insolvent
-Cash shortages

Question 3

What may being bankrupt lead to?

Answer 3

Inability to pay creditors to they make take business to court

Question 4

What does it mean for a business to become insolvent?

Answer 4

To stop trading on its own accord due to liquidity issues

Question 5

What are liquidity issues?

Answer 5

The inability to pay short term debts from assets

Question 6

What may cash shortages lead to?

Answer 6

being unable to pay immediate debts

Question 7

Give 4 examples of things that may cause cash flow problems

Answer 7

-Over borrowing
-Seasonal factors
-Unforseen expenditure
-External factors

Question 8

Explain what unforseen expenditure is

Answer 8

Things the owner has to pay for in the business that was unexpected
(Eg, replace a broken fridge)

Question 9

Give 4 examples of external reasons why a business may fail

Answer 9

-External shocks
-Natural disasters
-Saturated market
-Change in consumer trends

Question 10

What is an external shock?

Answer 10

unexpected events outside of a country’s economy and can have a significant impact on it

Question 11

What is a saturated market?

Answer 11

Where the volume for a product in a market place has been maximised so a business is only able to grow through new product improvements