Internal causes of business failure
- Created by: noe
- Created on: 01-03-20 19:20
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- INTERNAL CAUSES OF BUSINESS FAILURE
- Poor management of cash - running out of cash
- Investing too much on fixed assets
- Allowing too much credit
- This may force businesses to borrow money and go into debt
- Overborrowing causes interest costs to rise
- Seasonal factors
- Businesses might have to pay the expenses for most of the year without cash flowing in
- Unforeseen expenditure (equipment breakdowns, tax demands, bad debts...)
- External factors
- Poor financial management
- Overestimating sales
- If a business is too optimistic they might build too much unsold stock and revenue might be low so the business may find too much money has flowed out of the business and not enough in.
- Overtrading
- This occurs when a business does not have enough cash to support its production and sales, usually because it is growing too fast.
- Poor inventory control
- If a business carries large quantities of inventories, money will be tied up unproductively until they are sold. This will increase the business' costs.
- If a business has too little stock customers might not find what they want, go to rivals and never return
- If a business buys the wrong sort of stock (e.g: low demand) it may have to be sold at a loss.
- Poor quality
- Supplying products which fail to meet customer quality expectations can result in a loss of sales and long-term damage to the brand's reputation.
- Poor marketing
- Setting prices too low or too high
- Launching products that fail to meet customer needs
- Invest heavily in wasteful, inappropriate or offensive promotional campaigns
- Failing to position correctly in the market
- Poor management of cash - running out of cash
- Poor marketing
- Setting prices too low or too high
- Launching products that fail to meet customer needs
- Invest heavily in wasteful, inappropriate or offensive promotional campaigns
- Failing to position correctly in the market
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