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

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

How does poor efficiency effect businesses

Answer 3

• In 2013 Modelzone closed leaving £9million of debt unpaid to Lloyds bank
• 47 stores closed and 387 workers lost their jobs
• This was due to an aggressive and disastrous expansion plan
• The store opened 15 new shops between 2010 and 2012 but did not have the sales to sustain it, as online trade was taking the business
• Reason for failure: Unrealistic sales forecasts which lead to over expansion

Question 4

How does poor marketing effect businesses

Answer 4

Not getting it out there

Question 5

How does failure to innovate effect businesses

Answer 5

Kodak the camera film producers knew that digital was coming, they even marketed that they were going digital
• Kodak failed to move fast enough into the digital world and didn’t recognise it as a disruptive technology

Question 6

How does poor management of working capital effect businesses

Answer 6

• Working capital performance is a measure of efficiency that compares a businesses’ assets to its liabilities
• Inability to manage cashflow is the most common reason businesses fail. Many profitable and seemingly successful businesses have gone ‘belly-up’ because they haven’t had enough cash to pay their bills on demand.

Question 7

External causes of business failure

Answer 7

1. Economic recession
2. Strong pound – reduced export demand

Question 8

How does economic recession effect businesses

Answer 8

• As a country enters economic recession, customers start to save rather than buy
• They put off decisions to purchase large expensive items and they also switch to buying more inferior goods

Question 9

How does the strong pound effect businesses

Answer 9

• Strong pound means that manufacturing businesses who heavily export will be affected
• It means their goods and products that they manufacture will cost their customers more