T36- business failure

• Causes of business failure

  • Internal causes
  • External causes
• Internal causes of business failure

  • Financial factors
  • Non-financial factors
• Common reasons why new businesses fail

  • No demand for the idea
  • Good idea, but poorly executed
• No demand for the idea - business failure

  • Poor market research & unrealistic plan
  • Competitor response
  • A bad idea
• Good idea, but poorly executed - business failure

  • Wrong people: poor management
  • Growth is too quick (overtrading) or too slow
  • Failure to manage cash flow
• External causes of business failure

  • Economic change
  • Legal & social change
• Internal causes of business failure

  • Lack of business planning
  • Cash flow problems
  • Lack of finance
  • Marketing problems
  • Failure to innovate
  • Lack of business skills
  • Poor leadership
• Cash flow problems

  • Businesses are prone to overtrading
  • Investing too much in fixed assets
  • Allowing too much credit
  • Overborrowing
  • Unforeseen expenditure
• External causes of business failure

  • Competition (non-financial)
  • Changes in legislation
  • Change in consumer taste
  • Economic conditions
• Overtrading is where businesses expand too quickly
• External factors that cause cash flow problems are outside of the businesses control such as changes in consumer tastes, new legislations, external shock e.g. pandemic, war, a recession in the economy
• In a recession growth will go down and unemployment will increase and people will have less to spend
• When interest rates are high people take out less loans so they will buy less therefore they will fail. Business have higher costs on borrowing