WHY DO BUSINESSES FAIL?

Businesses fail for a number of reasons ...

Cash Flow Problems Cash Flow causes most problems Many businesses do not plan ahead properly - they do not draw up a Cash Budget Even those that do can be caught out ...

Cash Flow causes most problems

Many businesses do not plan ahead properly - they do not draw up a Cash Budget

Even those that do can be caught out ...

They may have been too optimistic with their figures Perhaps a big customer takes a long time to pay or even goes bust owing them money Perhaps they suffer storm damage

They may have been too optimistic with their figures

Perhaps a big customer takes a long time to pay or even goes bust owing them money

Perhaps they suffer storm damage

Or there is something quite unforeseen like a petrol blockade or foot-and-mouth which stops people moving about and affects trade BAA...D

Or there is something quite unforeseen like a petrol blockade or foot-and-mouth which stops people moving about and affects trade

The result is that there is not enough cash coming in to pay the bills The bank may allow an overdraft for a limited time but if things don’t improve the business will go down the

The result is that there is not enough cash coming in to pay the bills

The bank may allow an overdraft for a limited time but if things don’t improve the business will go down the

  Read the article on Worksheet Why Businesses Fail – worksheet 1 and answer the questions.

Competition is too fierce They have a better product They use destroyer pricing - making prices so low other businesses can’t compete They have identified their market better They have joined together (illegally) to push you out

They have a better product

They use destroyer pricing - making prices so low other businesses can’t compete

They have identified their market better

They have joined together (illegally) to

push you out

Business generally is bad The economy is in recession which means that less is produced less is earned less is spent less is bought more people are unemployed and have no money to buy things

The economy is in recession which means that

less is produced

less is earned

less is spent

less is bought

more people are unemployed and have no money to buy things

The business has not kept up-to-date The product is obsolete The product is no longer fashionable Method of production is old-fashioned and inefficient Marketing is not effective

The product is obsolete

The product is no longer fashionable

Method of production is old-fashioned and inefficient

Marketing is not effective

Poor management Unattractive, shabby premises - puts customers off Stock not available - customers go elsewhere

Unattractive, shabby premises - puts customers off

Stock not available - customers go elsewhere

Old, dangerous equipment - leading to staff injury and time off De-motivated staff - leading to poor customer service and high staff turnover

Old, dangerous equipment - leading to staff injury and time off

De-motivated staff - leading to poor customer service and high staff turnover

Poor record keeping and supervision of staff leading to theft and reduced profit

Poor record keeping and supervision of staff leading to theft and reduced profit

What kind of challenges do businesses face? Businesses may face many challenges. Some of these come from within the business (INTERNAL) and some come from outside the business (EXTERNAL)

Internal Challenges Businesses face pressures from within, eg Shortage of Finance Staff Problems Faulty equipment

Businesses face pressures from within, eg

Shortage of Finance

Staff Problems

Faulty equipment

Shortage of Finance If there is a lack of money in the business, the business may find it more difficult to: expand buy new equipment pay bills

If there is a lack of money in the business, the business may find it more difficult to:

expand

buy new equipment

pay bills

Staff Problems Problems with staff can occur if they feel they are not working in a good environment including the following: poor industrial relations resulting in employees going on strike etc poor quality of goods/services due to unmotivated staff staff may leave for an organisation offering better wages, promotion prospects. This may result in a fall in production

Problems with staff can occur if they

feel they are not working in a good

environment including the following:

poor industrial relations resulting in employees going on strike etc

poor quality of goods/services due to unmotivated staff

staff may leave for an organisation offering better wages, promotion prospects. This may result in a fall in production

Faulty Equipment Problems with equipment may result in products: which are of poor quality not produced on time not up to the standard of competitor’s products

Problems with equipment may result in products:

which are of poor quality

not produced on time

not up to the standard of competitor’s products

External Pressures Businesses can also face constraints from the outside, eg Political challenges Social & environmental challenges Technological challenges Competitive challenges

Businesses can also face constraints from the outside, eg

Political challenges

Social & environmental challenges

Technological challenges

Competitive challenges

POLITICAL CHALLENGES Businesses need to be aware of Government legislation. There is legislation to protect: the consumer ~ Trade Descriptions Act 1968, Food Safety Act 1990 the employee ~ Minimum Wage Act, Health & Safety at Work Act, Working Time regulations, Sex Discrimination Act, Race Relations Act the environment ~ laws are passed to protect the environment from any harmful actions of businesses. Fines can be placed on businesses if they abuse pollution laws Complying with government laws will increase business costs in both time and money.

Businesses need to be aware of Government legislation. There is legislation to protect:

the consumer ~ Trade Descriptions Act 1968, Food Safety Act 1990

the employee ~ Minimum Wage Act, Health & Safety at Work Act, Working Time regulations, Sex Discrimination Act, Race Relations Act

the environment ~ laws are passed to protect the environment from any harmful actions of businesses. Fines can be placed on businesses if they abuse pollution laws

  Access the Internet. Search for the pieces of legislation listed previously. Write a brief note describing each law.

SOCIAL & ENVIRONMENTAL CHALLENGES These challenges are based upon changing needs & wants of the consumer. Consumers are increasingly aware of environmental issues, and will often only buy goods from firms that can show they have not damaged the environment. There are more women in work, people living longer, more single parent families, and the average family now has less than 2 children. These factors mean that customers have changed and the firms have to provide goods/services to match their demands. Eg, there has been an increase in companies providing holidays for the over sixties.

These challenges are based upon changing needs & wants of the consumer.

Consumers are increasingly aware of environmental issues, and will often only buy goods from firms that can show they have not damaged the environment.

There are more women in work, people living longer, more single parent families, and the average family now has less than 2 children. These factors mean that customers have changed and the firms have to provide goods/services to match their demands. Eg, there has been an increase in companies providing holidays for the over sixties.

TECHNOLOGICAL CHALLENGES These challenges are based upon changing technology. Technology is changing rapidly, therefore businesses find themselves investing in new technology regularly so as not to be left behind by their competitors. New technology requires money to be spent on the equipment and training for staff. then now

COMPETITIVE CHALLENGES The aim of a business to increase its profit and expand may be affected by competition from other firms. Types of competition faced by firms include: lower prices better quality products new ideas lower wage rates/raw materials abroad can result in cheaper imports into Britain

The aim of a business to increase its profit and expand may be affected by competition from other firms. Types of competition faced by firms include:

lower prices

better quality products

new ideas

lower wage rates/raw materials abroad can result in cheaper imports into Britain