1.36 Business Failure Flashcards
(26 cards)
What is meant by overtrading?
When a business expands too quickly without sufficient capital, causing cash-flow problems.
What is meant by administration?
When a failing business appoints a specialist to rescue or wind it up.
What is meant by internal factors?
Factors within a business that contribute to failure, such as poor planning or leadership.
What is meant by external factors?
Factors beyond the control of a business that can cause failure, like economic conditions or legislation.
What is meant by cash-flow problems?
When a business cannot meet its short-term financial obligations due to insufficient cash.
Why is a business plan vital to success?
It provides a roadmap, sets financial expectations, and identifies potential risks.
Give two internal causes of business failure.
Lack of planning and overtrading.
Give two external causes of business failure.
Changes in legislation and competition.
What is the difference between financial and non-financial causes of failure?
Financial: cash shortages, insolvency. Non-financial: poor leadership, lack of innovation.
How can allowing too much credit lead to failure?
Delays cash inflows and can result in bad debts.
Why is relying on a narrow customer base risky?
Losing a key customer can severely reduce revenue.
How can investing too much in fixed assets cause failure?
It ties up cash, leaving little for daily operations.
Why does poor financial management cause business failure?
It results in poor cash-flow planning and insufficient funds.
Why can poor marketing lead to failure?
The business may not reach its customers or may price products wrongly.
How can poor leadership cause failure?
Leads to bad decisions, slow responses to market change, and demotivated staff.
How can failure to innovate lead to failure?
Competitors advance while the business falls behind.
What is the impact of competition on business survival?
Stronger rivals can offer better value or tech, drawing customers away.
How can changes in consumer tastes affect businesses?
Products become outdated and sales drop.
How can changes in legislation lead to business failure?
Increased costs or restricted operations may make businesses unviable.
Why did business failures peak in 2009?
Due to the financial crisis and resulting recession.
How many UK businesses fail within five years?
About 90% of start-ups.
What is the main financial reason for business failure?
Running out of cash or insolvency.
Give an example of a non-financial reason for failure.
Poor leadership or failure to innovate.
How can economic conditions cause failure?
Recession reduces consumer spending.
