2.3.3 Business Failure

Internal Causes for Business Failure

• Ineffective product
• Poor liquidity due to poor financial management may lead to cash-flow problems
• Lack of efficiency and cost competitiveness
• Over-expansion, experience diseconomies of scale
• Poor customer satisfaction, loss of market share
• Poor marketing, failure to attract sufficient customers
• Poor PR incident
• Ignoring the need for innovation and failing to adapt to changes in the market
• Failed expansion, not anticipating problems

External Causes for Business Failure

• Competition, innovation and activities from other firms may make the business lose its USP, falling demand
• A rise in interest rates can increase borrowing costs as well as affect consumer spending
• In a recession, consumers may have less disposable income, detrimental for businesses that face income elastic demand for their product, fall in demand, fall in profits
• Technological changes, other firms may be more cost-competitive due to capital machinery
• Rising costs for ethically sourced materials, lack of cost competitiveness