CHAPTER 15 - Reasons for Business Failure

Question 1

CASH FLOW PROBLEMS

Answer 1

• many business fail because they run out of cash
• reasons for this:
  
  • overtrading
  • investing too much in fixed assets
  • allowing too much credit
  • over - borrowing
  • seasonal factors
  • unexpected expenditure
  • external factors
  • poor financial management

Question 2

LACK OF FINANCE

Answer 2

some business owners think they can survive with limited amounts of capital by being cautious = undercapitalised
——> if a business does not raise enough money before trading begins it will risk failure

Question 3

NOT COMPETITIVE

Answer 3

some businesses fail because they are unable to compete effectively in the market

( NEW ENTRANTS )

Question 4

INEFFECTIVE COST CONTROL

Answer 4

some business pes can’t keep their costs down = higher cost than rivals, this is because

• that may be too small to exploit economies of scale
• they may be wasteful
• paying too much for some resources ( not enough time spent looking for suppliers in the market )

Question 5

INEFFECTIVE MARKETING

Answer 5

businesses may struggle to compete if their marketing is weak

• a business might launch a new product, which fails to take off
• a business might use inappropriate pricing strategies
• a business might use inappropriate marketing strategies

Question 6

LACK OF BUSINESS SKILLS

Answer 6

business may fail because owners are not sufficiently skilled.

Question 7

POOR LEADERSHIP

Answer 7

poor decision making or a failure to make urgent changes

Question 8

FAILURE TO INNOVATE

Answer 8

• some business collapse because they fail to innovate - they do not change with the times
• they may have failed to adapt new technology or to develop new products