unit 2.4 why do businesses fail?. in this section you will learn: why some businesses “go...
TRANSCRIPT
UNIT 2.4
Why do businesses fail?
In this section you will learn:
Why some businesses “Go under”?What can go wrong within the business?What can affect the business from
outside?How can firms use information to avoid
failure?What does a business do if the cash runs
out?
In this section you will learn:
What the Business Cycle isWhy businesses need to respond to
change?How managing resources can contribute
to success or failure?How a business faces up to failure?
Why do businesses fail?
In recent years more and more people have started up their own businesses –
Virgin – airlines, trains records etc – Richard BransonThe Body Shop – Anita RoddickKwik Fit – Tom Farmer
Unfortunately not all business are a success – about 80% fail within a short time.
Reasons why businesses fail
Fierce competitionEconomic recessionCash flow problemsBusiness not moving with the timesPoor resource managementExternal factors – war, floods, political
factors
Reasons why businesses fail
COMPETITION – COMPETITORS HAVE:
Better productsIdentified the market more clearlySet their prices extremely low to eliminate
competition – Destroyer pricing – prices rise once competitors have been destroyed.
Lower prices – importing from abroad
Reasons why businesses fail
RECESSION
Financially economy slows downLess produced, less spent, less boughtObtaining loans is differentUnemployment usually increases in
recession
Reasons why businesses fail
CASH FLOW PROBLEMS
A business should prepare cash budgets etc
“If you fail to plan, you plan to fail”
Businesses should prepare for future downturns by building up reserves
Reasons why businesses fail
NOT MOVING WITH THE TIMES
Product is obsoleteProduction outdated – need for
automationUnfashionableMarketing/ advertising ineffectiveProduct end of life cycle
Reasons why businesses fail
POOR RESOURCE MANAGEMENT
Businesses not managing their resources
properlyCar parks not properly maintainedShabby premises, fault doors, poor
heatingBadly maintained equipment
Reasons why businesses fail
POOR RESOURCE MANAGEMENT
Lack of efficient security leading to pilfering/stealing
Failure to keep efficient records resulting is asset theft
Demotivated staff –High prices resulting in drop in market
share
Reasons why businesses fail
EXTERNAL FACTORS – PEST factors
Political – new laws Economic – increasing interest ratesSocio-cultural – ban on smoking in publicTechnological – important to keep up with
technological advances.
THE BUSINESS CYCLE
The Business Cycle shows the pattern
of UPS (Booms) and DOWNS
(slumps) over a period of time in the
economy. It shows the level of
economic activity.
GOING DOWN
RECESSIONGOING UP
SLUMP
BOOM
THEBUSINESS
CYCLE
How the level of economic activity can affect a business?
Businesses are affected by each stage of
the Business Cycle.
Different types of businesses can be
affected in different ways.
How the level of economic activity can affect a business?
On the downturn:
Unemployment increasesSome people will reduce their spendingSome people may try and save “for a rainy
day”This will mean that fewer goods and
services are purchased so organisations will produce less and output will fall.
THE ECONOMY IS IN RECESSION
Businesses tend to do badly in periods of recession
How the level of economic activity can affect a business?
As things start to recover:
People will start to buy againFirms will produce moreThe economy starts to grow
How the level of economic activity can affect a business?
As orders increase:
Firms will employ more workers to produce goods and services
Employment improves and spending power increases
As things start to look good the economy enters the BOOM period.
How the level of economic activity can affect a business?
But when workers see the firm doing well
They will demand higher wages resulting in higher costs to the business
Businesses may find they cannot always deliver what people want
Prices start to rise due to increased costs and inflation may then increase
How the level of economic activity can affect a business?
But when workers see the firm doing well
Products become less competitiveOther countries can produce more cheaplyDemand for our country’s products falls
The economy is back on the road to recession