Unit 5.2.6 Causes of business failure

Objectives To know what is meant by business failure To know a range of different reasons why

business fail To understand what is meant by a lack of

competiveness To understand how the following factors can lead

to a loss of competiveness Poor marketing mixLoss of productivity Increased competitionChanging market conditions

To define cash flow and recognise how this can lead to business failure.

What causes

business failure?

What causes

business failure?

Productivity maters

Change in demand

Getting the marketing mix wrong

Managing cash flow

Causes of business failure If a business does not have enough money to pay its bills over a prolonged period of time it is said to be INSOLVENT. This usually results in Business failure. There are a number of reasons why this might happen.

Define and describe Insolvent

Marketing Mix

To survive, businesses have to be competitive. They must meet customers’ needs better than their rivals do. They may lose competitiveness if they get part of the marketing mix wrong.

Errors in the marketing mix!CAN YOU THINK OF ANY????

PRICE – to low or too high

Product – poor quality or doesn’t meet customer needs

Promotion – wrong media or wrongly targeted

Place – poor delivery record or not available online.

Productivity Productivity is the output per worker or

machine over a period of time. If productivity falls, business costs may rise. Poor productivity may be caused by:

Inadequate training or demotivated Bad management Out of date machinery A lack of flexibility

Why is cash flow important?

Express your thoughts

and ideas!

The importance of cash flow!Businesses need to make sure that they have enough cash when they need it. Without cash a business cannot trade – it will fail. CASH FLOW problems may be caused by:

An unexpected fall in demand Allowing too much trade credit Seasonal demand Poor cash management Unexpected expenditure or bad debts

Why do you think some businesses

fail?

Changing market conditions and competition

Some businesses fail because demand for their products fall.

Why might this happen?

Changing market conditions and competition A fall in income – perhaps due to a recession

A change in tastes or fashion – new trends can change demand

Advertising – a lack of advertising or poor adverts can change demand

Increased competition – new rivals with better products will affect demand.

Question time In 2011, many retailers such as Oddbins, Habitat and Focus DIY failed, mainly because of recession. Explain how a recession causes a change in demand for the products of these retailers. (3marks)

You need to make 3 clearly linked statements to ‘explain how a recession causes a change in demand ‘.

Grade your answer out of 3

In 2011, many retailers such as Oddbins, Habitat and Focus DIY failed, mainly because of recession. Explain how a recession causes a change in demand for the products of these retailers. (3marks) A recession usually leads to a fall in demand. People may lose their jobs and have less income. As their income is lower, they are less likely to buy wine, furniture or housing materials such as those sold by Oddbins, Habitat and Focus DIY.

What is the difference between this answer

and yours?

1. Which of the following is most likely to lead to a fall in productivity?

Select one answer!

1. An increase in price 2. A decrease in price 3. Installing new technology 4. A decline in worker motivation

1 MARK

Now try this C-B

Answer D

Define the key terms

Marketing mix – having the right product at the right price in the right place with the right promotion

Cash flow - the total amount of money being transferred into and out of a business

Productivity - Productivity is the output per worker or machine over a period of time

However, even if students did not correctly identify an element of the marketing mix, the examiners did sometimes award marks for analysis

Explain what you have learned today

Task Answer test yourself and over to you page 35