Business 2.3.3 Business Failure

• What are some internal causes of Business Failure:

  • Cash flow problems
  • Lack of innovation
  • Marketing
  • Inefficiancy
• What are some external causes of Business Failure:

  • Economic influences
  • Competition
  • External Shocks
• Internal: Cash flow problems

  • Poor cash - flow / management of working capital is a key cause of business failure because the business simply ran out of cash
• Internal: Lack of innovation

  • Common cause for business failure especially when the business operates in a dynamic market
• Internal: Marketing

  • Poor promotional techniques, incorrect pricing strategies or incorrect market positioning can lead to business failure
• Internal: Inefficiency

  • A business can become inefficient by growing and its organisational structure becoming more complex where it can be suffer from diseconomies of scale.
• External: Economic Influences

  • Examples = a recession or changes to exchange rates which may lead to a reduction in demand for certain businesses
• External: Competition

  • New entrants to the market can put pressure on existing businesses.
  • Existing competitors may also develop new products and services or develop more efficient production techniques, giving them a competitive advantage
• External: External shocks

  • A significant change in the external environment like terrorism and major health scares, can impact the demand for certain products and services and could lead to business failure
• Financial causes of Business Failure:

  • Cash flow / poor management of working capital
  • Poor communication / diseconomies of scale
• Non - Financial causes of Business failure:

  • Lack of innovation
  • Increased competition
  • External shocks