Business Failure 2.3.3

Question 1

where is the highest rate of business failure

Answer 1

new businesses

Question 2

why do most new businesses fail

Answer 2

• difficult to test before launching
• easy to be over-optimistic
• aggressive competitor response
• lacking in experience

Question 3

give 4 reasons why established businesses may fail

Answer 3

1. misunderstanding of consumers
2. failure to differentiate
3. poor leadership
4. external shocks

Question 4

what evidence is there to imply that a business has poor management of their cash flow

Answer 4

• significant increase in stock levels
• bad debts incurring
• inaccurate forecasting

Question 5

how do good businesses stay afloat during changes in the external enviroment

Answer 5

ensure that the business has enough retained profit to stay afloat

Question 6

what is the connection between business failure and current ratio

Answer 6

is the CR is below 1 the business will not be able to pay their debts and bills

Question 7

give 3 reasons why a growing market may lead to more business failures

Answer 7

1. increased competitors
2. changing trends/consumer taste
3. businesses require high market share to stay competitive and afloat