2.3.3 Business Failure

    Cards (40)

    • Business failure occurs when a company cannot cover its liabilities
    • What is the term for selling assets to pay creditors?
      Liquidation
    • In receivership, an external administrator takes control to manage finances.
    • Bankruptcy is a legal process declaring inability to pay debts
    • What does poor financial planning involve in business failure?
      Inadequate budget and cash flow management
    • Market changes, such as shifting consumer preferences, are categorized as external causes
    • External shocks, like pandemics, can cause business failure.
    • What is the impact of ineffective management on business failure?
      Lack of leadership and strategic vision
    • Ineffective management involves a lack of leadership and strategic vision
    • What are the two broad categories of causes for business failure?
      Internal and external factors
    • What type of cause is inadequate budget management in business failure?
      Internal
    • Competition is a factor that contributes to business failure under the category of market changes
    • Business failure can result from factors both within and outside a company's control.
    • What are the two broad categories of causes for business failure?
      Internal and external
    • Poor financial planning is an internal cause of business failure.
    • Ineffective management refers to a lack of leadership and strategic vision
    • What is an example of an external cause of business failure?
      Market changes
    • An economic downturn reduces spending and business activity.
    • External shocks include unexpected crises like pandemics or natural disasters
    • Order the types of business failure from least to most severe in terms of financial stability:
      1️⃣ Voluntary Administration
      2️⃣ Receivership
      3️⃣ Liquidation
      4️⃣ Bankruptcy
    • What is a financial impact of business failure?
      Loss of revenue
    • Debt accumulation increases liabilities during business failure.
    • Asset depletion involves selling assets to cover debts
    • What happens to creditors during business failure?
      They suffer financial setbacks
    • Shareholders lose their investment in the company during business failure.
    • What is a non-financial impact of business failure?
      Job losses
    • Business failure can cause economic disruption
    • A decline in business reputation is a non-financial impact of failure.
    • What happens to innovation during business failure?
      It is reduced
    • Match the financial impact of business failure with its description:
      Loss of Revenue ↔️ The business can no longer generate income.
      Debt Accumulation ↔️ Existing debts cannot be repaid.
      Asset Depletion ↔️ Assets are sold to cover debts.
      Creditor Losses ↔️ Creditors suffer financial setbacks.
    • Liquidation involves selling assets to pay creditors
    • What happens during receivership in business failure?
      External administrator takes control
    • Voluntary administration occurs when directors hand over management to administrators.
    • Bankruptcy is a legal process declaring inability to pay debts
    • Order the strategies to prevent business failure based on their focus:
      1️⃣ Proactive Financial Planning
      2️⃣ Effective Management
      3️⃣ Operational Efficiency
      4️⃣ Adaptability to Market Changes
      5️⃣ Risk Management
    • What does proactive financial planning involve?
      Budgeting and cash flow management
    • Effective management improves operational efficiency.
    • Operational efficiency focuses on optimizing processes to reduce costs
    • Why is adaptability to market changes important?
      To stay competitive
    • Risk management creates contingency plans to mitigate threats.