CAUSES OF BUSINESS FAILURE

• LACK OF MANAGEMENT SKILLS- This is a common cause of new business failures. Lack of experience can lead to bad decisions, such as locating the business in an area with high costs but low demand. Family businesses can fail because the sons and daughters of the founders of a business do not necessarily make good managers – and they might be reluctant to recruit professional managers.
• CHANGES IN THE BUSINESS ENVIRONMENT- Failure to plan for change is a feature in many of the later chapters. This adds to the risk and uncertainty of operating a business. New technology, powerful new competitors and major economic changes are just some of the factors that can lead to business failures if they are not responded to effectively .
• LIQUIDITY PROBLEMS OR POOR FINANCIAL MANAGEMENT-Shortage of cash (lack of liquidity) means that workers, suppliers, landlords and government cannot be paid what they are owed. Failure to plan or forecast cash flows can lead to this problem and is a major cause of businesses of all sizes failing.
• OVER-EXPANSION- When a business expands too quickly it can lead to big problems of management and finance. If these are not solved, the difficulties can lead to the whole business closing down.