ch 36

Question 1

What is meant by the term administration?

Answer 1

a failing business appoints a specialist to rescue the business or wind it up

Question 2

what is meant by the term external factors?

Answer 2

factors beyond the control of the businesses cause it to collapse

Question 2

what is meant by the term internal factors?

Answer 2

factors that business are able to control cause it to collapse

Question 2

what is meant by the tern over trading?

Answer 2

the situation where a business does not have enough cash to support its production and sales, usually because its growing to fast

Question 3

what are internal reasons for business failure?

Answer 3

lack of planning
Cash flow problems
lack of funds
relying on a narrow customer base
marketing problems
failure to innovate
lack of business skill
poor leadership

Question 4

how can lack of planning lead to business failure?

Answer 4

a thorough business plan will allow the owners to make an objective and critical look at the business ideas
it could provide a road map for development or identify that the business will not be successful and allow for either attractions or stopping before you start
of particular importance is financial planning, careful budgeting and cash flow analysis is required to ensure the business doesn’t run out of cash
seek advice from professionals

Question 5

how can a lack of funding lead to business failure?

Answer 5

some businesses fail because the cannot attract funding, this issue can affect both established and new businesses
established businesses may fail to attract funding due to previous record of poor decisions making and financial track record . this could present too much risk for investors
new businesses may struggle to attract funding due to not having past records

Question 6

what are the different factors that lead to cash flow problems?

Answer 6

overtrading
investing too much fixed assets
allowing too much credit
over borrowing
seasonal factors
unforeseen expenditure
external factors
poor financial management

Question 7

how can over trading lead to cash flow problems?

Answer 7

take on too many sales
- purchasing too much and running our cash reserves too low

Question 8

how can investing too much in fixed assets lead to cash flow problems?

Answer 8

could have leased
- take capital from the business

Question 9

how can over borrowing lead to cash flow problems?

Answer 9

borrowing more than you can afford
- capital and interest requirements

Question 9

how can allowing too much credit lead to cash flow problems?

Answer 9

need the loyalty from the customers
- you may have sales but they may not pay you back

Question 10

how can seasonal factors lead to cash flow problems ?

Answer 10

people forget their products seasonality
ice cream sales –> buy assets in winter not summer
will have a ‘cold’ period with low sales but still many outflows

Question 11

how can unforeseen expenditure lead to cash flow problems?

Answer 11

may have not consider extra checks e.g. electrical wiring due to lack of planning
break-down of a major machine

Question 12

how can poor financial management to cash flow problems?

Answer 12

-lack of experience may lead to poor cash flow management as they just dont know how to

Question 13

how can lack funding lead to business failure?

Answer 13

Some businesses fail because they cannot attract funding. This issue can affect both established and new businesses.
Established businesses may fail to attract funding due to previous record of poor decision making and financial track record. This could present too much risk for investors.
New businesses may struggle to attract funding due to not having a past record!

Question 14

how can marketing problems lead to business failure?

Answer 14

there are a range of reasons as to why businesses face problems with marketing
product fail to satisfy customers
inappropriate pricing structures
too much spent on promotional campaigns

Question 15

how can relying on a narrow customer base lead to business failure?

Answer 15

Whilst operating in a niche market may allow you to develop a USP and differentiate yourself from your competitors, it may also mean that you’re limiting your potential customer base.
Alternatively, some businesses may set them selves up to service a small number of large businesses.
For example, a number of farming businesses have gone out of business because the were too reliant on contracts with supermarkets. When terms on new contracts couldn’t be agreed, due to the supermarkets squeezing margins, they didn’t have enough customers to sell their products to.

Question 16

how can lack of business skills lead to business failure?

Answer 16

Unfortunately, sometimes good inventors are not good entrepreneurs. Individuals with good technical skills, can see great products fail, as they don’t have the business acumen to make it work.