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Why do businesses fail?

Why do businesses fail?. Unit 2.4. Why do businesses ‘go under’?. During the past 10 years more and more people have started their own businesses.

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Why do businesses fail?

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  1. Why do businesses fail? Unit 2.4

  2. Why do businesses ‘go under’? • During the past 10 years more and more people have started their own businesses. • Some of these businesses have become national and international success stories:- Virgin Airlines, Virgin Trains (Richard Branson)- The Body Shop (Anita Roddick)- Kwik-Fit (Tom Farmer) • Unfortunately statistics tell us that about 80% of businesss fail very soon after start up. WHY?

  3. Reasons why businesses fail • Competition is too fierce • The economy is in recession • There are cash flow problems in the business • The business is not moving with the times • Poor resource management • External factors (eg a war or earthquake)

  4. Competition is too fierce • Competitors have a better product (higher quality or more useful product). • Competitors have identified their market more clearly • Destroyer pricing (also known as predator pricing) occurs when competitors set their prices extremely low until the competition is destroyed. • Some competitors have been accused of restrictive practices which can involve agreements between businesses to cut down competition.

  5. The economy is in Recession • Financially the economy slows down for a period of time – less is produced, spent, bought and obtaining loans is more difficult. • Unemployment usually increases • Sales fall and profits decrease • For businesses with inadequate cash flows and few reserves, it is difficult to survive a long period of recession. • Many small businesses do not survive • The economy suffers booms and slumps on a regular basis.

  6. The economy in Recession The economy suffers from booms and slumps, and these occur on a fairly regular basis. A recession is an example of a slump, when production slows down. A boom period is when production increases rapidly over a period of time. This is called a cycle. Production Boom Boom Slump Slump Time Year 1 Year 5 Year 10 Year 15

  7. What happens to businesses during a recession? • They do badly because fewer people buy their products. • Businesses which produce luxury products do especially badly. • To survive a business must: SATISFY CONSUMER NEEDS

  8. Links • http://www.bbc.co.uk/news/uk-scotland-tayside-central-11010527 • http://www.bbc.co.uk/news/business-11018345

  9. Businesses behind the times • Harley Davidson • AMD • Nokia • Car manufacturers – GM, Dodge etc • Local examples?

  10. Responding to changes • Coca-cola – Coke Zero • BMW – Efficient dynamics • Peugeot – Just add fuel • Apple – Ipod Nano • Local examples?

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