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. Some.

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Presentation transcript:

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. 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?

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)

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.

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.

The economy in Recession Boom Slump Year 1Year 5Year 10Year 15 Time Production 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.

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

Links tayside-central tayside-central

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

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