Business Failure

Question 1

What are the causes of business failure?

Answer 1

Internal and external

Question 2

What are internal causes of business failure?

Answer 2

• industrial actions
• poor performance
• management
• lack of finance
• not risk taking

Question 3

What are external causes of business failure?

Answer 3

• competition
• economy/regulations (recessions)
• trends
• lack of supply
• downturn in market
• legislation (additional charges)
• negative public relations
• unforeseen events

Question 4

What departments are responsible for causes of internal causes?

Answer 4

operations, human resources management. marketing, finance and accounting

Question 5

What are operations? and how can it go wrong?

Answer 5

• efficiency of a company turning factors of production into goods/services
• poor inventory management due to trends/outdated market/dynamics/not innovating/economies of scale/quality factors/shrinkflation

Question 6

What is shrinkflation?

Answer 6

process of items shrinking in size or quantity, or even sometimes reformulating or reducing quality, while their prices remain the same or increase.

Question 7

What is inventory control?

Answer 7

working with suppliers to ensure right stocks are available for customers to buy.

Question 8

What are human resources? and how can it go wrong?

Answer 8

• ensuring people are in the right area of a company making sure the corporate objective is met
• possibly effective leadership

Question 9

What is effective leadership?

Answer 9

the art of motivating people to achieve company goals

Question 10

What is marketing? and how can it go wrong?

Answer 10

understanding demands of customers and creating products that satisfy customers

• create long term brand loyalty
• go wrong if company misunderstands target market
  e. g. effectiveness and correct celebrity endorsement

Question 11

What is finance and accounting? how can it go wrong?

Answer 11

Controls what the business can do and spend money on

- go wrong if business overspends and has misleading predictions leading to administration, insolvency and liquidation.

Question 12

How can financial crises lead to business failure?

Answer 12

• economic downturns = less spending and demand
• global recessions = in GDP limited disposable income, forced administration and closures and unemployment
• continues store closure = due to internal and external factors.

Question 13

How can external factors lead to business failure?

Answer 13

beyond company control (PESTLE)

Question 14

What are Porters 5 forces?

Answer 14

1) bargaining power of suppliers
2) threat of new entrants
3) threat of substitute products
4) Bargaining power of buyers
5) Competitive rivalry within the industry

Question 15

How can porters 5 forces lead to business failure?

Answer 15

1) Bargaining power of suppliers = pressure that suppliers can exert on a business which may collapse the business
2) Threat of new entrants = new competition, less market share leading to lost customers
3) Threat of substitutes = offers similar products may replace older products good with a positive cross elasticity of demand
4) Bargaining power of buyers = determines influence of buyers, this is when: market orientated, one consumer with large orders, stock easily sells out.
5) Competitive rivalry within the industry = more competition, market share and growth, product differentiation and loyalties

Question 16

What are some financial reasons of business failure?

Answer 16

poor liquidity
poor profitability
poor cash flow
high costs
poor resource control
debtor control 
bad financial plan

Question 17

What are some non financial reasons of business failure?

Answer 17

PESTLE
poor leadership
unskilled labour
no innovation