2.3.3 Business Failure

Question 1

Internal causes of business failure

Answer 1

1. Poor planning.
   - Ineffective business plan, poor budgeting, lack of research and development so little innovation
2. Lack of leadership.
   - Poor decision-making, lack of urgency, failure to delegate, lack of skills to run a business
3. Ineffective marketing.
   - Not enough or inappropriate market research, poor understanding of customer needs, flawed product and pricing decisions, promotional mistakes
4. Cash flow problems.
   - Not enough cash to run day-to-day activities, not enough cash to pay off necessary debts
5. Lack of funds.
   - Failure to attract investment, difficulties in borrowing, limited owner capital

Question 2

External causes of business failure

Answer 2

1. Economic challenges
   - Business failures increased during periods of recession due to reduce demand, rising interest rates increase business costs, exchange rate fluctuations that affect planning can increase costs
2. Changes in consumer tastes.
   - The need for frequent market research increases costs, dated stock may be unsellable
3. Legal factors.
   - Products or assets may need to be redesigned or replaced to meet changed legal standards, legal rodents can affect business operations, legislation can increase staffing and transport costs
4. Market challenges.
   - Competitors undercut prices to gain market share, market selling prices may be too low to achieve break even
5. Technological change.
   - Significant capital spending is needed to replace obsolete non-current assets, product innovation leads to the disappearance of a business market