1 SG BUSINESS MANAGEMENT UNIT 2-4

2 Unit 2-4 Contents F G Competition Recession Financial problems Not moving with the times C  Business cycle  Response to Change  Externalities  Poor resource management

3 Why do businesses fail? 12% of Scottish businesses close within the first year 25 % within 2 years 33% within 3 years

4 What do they do - to be ‘better’?: have a better product have identified exactly what customers (market) needs are use promotions, competitions use destroyer pricing - low price (to get rid of competition) then increase Why do businesses fail? Fierce Competition

5 To be competitive, a firm needs a strong share of the market produce quality products and service, constantly improving them gain competitive advantage offering something different (USP) monitor competitors eg price, promotions constantly research what consumers want Why do businesses fail? Fierce Competition

6 To remain competitive, businesses must constantly review their marketing mix and make changes when necessary. Product Price Promotion Place

7 Why do businesses fail? - Not moving with the times Your product becomes obsolete Its production is out of date (need automation) Your product is out of fashion Marketing needs updated Reached decline (product life cycle) – need an extension strategy

8 Why do businesses fail? - Cash Flow (Financial) problems Cash Flow problems: Lack of CASH Not able to pay wages, rent, etc Lots of orders/customers wanting to buy Need an overdraft? Need to forecast!!!

9 Why do businesses fail? - Cash Flow (Financial) problems Ways of avoiding Cash Flow problems: Prepare a Cash Budget - forecast potential problems Final accounts – look at expenses,etc Arrange borrowing in advance Reduce spending Shorten credit period given to debtors Pay lower dividends to shareholders Have a reserve of funds/Sell some assets

10 Why do businesses fail? - Recession When the economy is in Recession:  less goods and services are produced  unemployment rises  sales fall – people have less money  profits fall - small businesses find it harder to survive than large businesses  producers of luxury goods most affected  difficult to obtain loans

11 Why do businesses Fail? - Business Cycle In a slump: Output falls Unemployment increases Wages and prices fall People reduce spending Recovery: People start to buy again Firms will increase production Economy starts to grow Boom: Firms employ more people Firms produce more goods and services Wages and prices rise Spending power increases

12 Referred to as “boom and bust” economics. This is where a period of prosperity is generally followed by a period of hardship in the economy as a whole. Rising Prices workers want wage increases Rising Costs further price rises Rising Prices firms become less competitive Why do businesses Fail? - Business Cycle

13 Businesses are affected at each stage of the business cycle. During a slump period it can be particularly difficult for some firms to survive. To survive, firms must:  Cut costs  Spread risk  Change products  Replace products at the end of life cycle.  Recognise changes in the market and respond to changing demands of consumers Why do businesses Fail? - Responding to the Business Cycle

14 External Influences - Externalities All business decisions are affected by the wider environment, eg  state of the economy – boom or slump  changing tastes and beliefs of consumers  social changes – attitude and demographics  pressure groups  strength and number of competitors  Government influences – changing laws, taxation

15 External Influences - Externalities P E S T Political Economic Changes BUSINESS Social Technological Changes

16 Why do businesses Fail? Poor Resource Management  If the combination of the Factors of Production has gone wrong, the business will be inefficient and loss- making.  Careful control of finance

17 Why do businesses Fail? Poor Resource Management Land Poorly maintained supermarket car park could put customers off. Labour Poor management of staff could lead to demotivation and staff shortage. Capital Badly maintained/old equipment can cause inefficiency and danger to staff. Enterprise Failing to observe what the market/customers want could mean producing goods that cannot be sold. Factors of Production