Business failure 2.3.3 Flashcards
1
Q
What are internal factors?
A
Factors that businesses are able to control cause it to collapse.
2
Q
What are internal causes of business failure examples?
A
- Lack of planning.
- Cash flow problems.
- Lack of funds.
- Relying on narrow customer base.
- Marketing problems.
- Failure to innovate.
- Lack of business skills.
- Poor leadership.
3
Q
What are external factors?
A
Factors outside of the business’s control that causes it to collapse
4
Q
What are external causes of business failure?
A
- Competition.
- Changes in legislation.
- Changes in consumer taste.
- Economic conditions (disposable income).
- Changes in market prices.
5
Q
What are common reasons why new businesses fail?
A
- No demand for the idea.
- Good idea, poorly executed.
- External shocks.
6
Q
What are the 2 types of factors?
A
- Financial factors
- Non- financial factors
7
Q
What are examples of financial reasons?
A
- Poor management of cash flow.
- Inadequate or inappropriate financing.
8
Q
What are examples of non- financial reasons?
A
- Lack of management control.
- Significant external shocks.
9
Q
Poor management of cash flow.
A
- Significant increases in stock levels.
- Inadequate credit control.
- Bad debts occurred.
- Poor accounting practices including late invoicing.
- Failure to plan for capital and or exceptional expenditure.
10
Q
Inadequate or inappropriate financing.
A
- Use of short term overdrafts for long term investment or capital spending.
- Failure to use debt factoring.
- Inadequate shareholder capital all contribute to cash flow problems.
11
Q
Lack of management control.
A
- Failure to develop a credible business plan.
- Failure to understand costs, markets and key customers.
- Excessive marketing expenditure.
12
Q
Significant external shocks.
A
- Loss of important/major customers
- Change in legislation impacting demand or increasing costs.
- Sudden decline in market demand.
