Business failure 2.3.3

Question 1

What are internal factors?

Answer 1

Factors that businesses are able to control cause it to collapse.

Question 2

What are internal causes of business failure examples?

Answer 2

• Lack of planning.
• Cash flow problems.
• Lack of funds.
• Relying on narrow customer base.
• Marketing problems.
• Failure to innovate.
• Lack of business skills.
• Poor leadership.

Question 3

What are external factors?

Answer 3

Factors outside of the business’s control that causes it to collapse

Question 4

What are external causes of business failure?

Answer 4

• Competition.
• Changes in legislation.
• Changes in consumer taste.
• Economic conditions (disposable income).
• Changes in market prices.

Question 5

What are common reasons why new businesses fail?

Answer 5

• No demand for the idea.
• Good idea, poorly executed.
• External shocks.

Question 6

What are the 2 types of factors?

Answer 6

• Financial factors
• Non- financial factors

Question 7

What are examples of financial reasons?

Answer 7

• Poor management of cash flow.
• Inadequate or inappropriate financing.

Question 8

What are examples of non- financial reasons?

Answer 8

• Lack of management control.
• Significant external shocks.

Question 9

Poor management of cash flow.

Answer 9

• Significant increases in stock levels.
• Inadequate credit control.
• Bad debts occurred.
• Poor accounting practices including late invoicing.
• Failure to plan for capital and or exceptional expenditure.

Question 10

Inadequate or inappropriate financing.

Answer 10

• Use of short term overdrafts for long term investment or capital spending.
• Failure to use debt factoring.
• Inadequate shareholder capital all contribute to cash flow problems.

Question 11

Lack of management control.

Answer 11

• Failure to develop a credible business plan.
• Failure to understand costs, markets and key customers.
• Excessive marketing expenditure.

Question 12

Significant external shocks.

Answer 12

• Loss of important/major customers
• Change in legislation impacting demand or increasing costs.
• Sudden decline in market demand.