Why Do Businesses Fail? Tuesday, November 16, 2010.

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Presentation transcript:

Why Do Businesses Fail? Tuesday, November 16, 2010

Overview ► Why is understanding business failure important?

► At one point in your life you will:  Own, work for, invest in, or depend upon one or more business. ► By analyzing businesses that have failed, we can learn from their mistakes. ► Often, the reasons that businesses fail is well documented, and more obvious than the reasons they succeed.

Lack of Skill or Knowledge ► Business failure often results from a lack of one of the major business skills:  Marketing  Accounting ► Why marketing? ► Why accounting?

Marketing ► Marketers can read the markets, predict demand, and select products that will be popular. ► Marketing experts provide promotional ideas, creative advertising, and eye catching displays. ► They help sell the product.

Accounting ► Set budgets and buying quotas that help the business spend its money wisely. ► Negotiate terms, pay invoices, factor in costs, and keep financial records. ► They ensure the business is profitable.

Expanding Too Quickly ► Some businesses become successful so fast that they try to grow too quickly without having a plan or understanding expansion. ► When rapid expansion occurs, businesses often forget the reasons for its initial success. ► See Coca-Cola introduction of “New Coke.”

Lack of Capital ► Running out of money is often the result of failure to budget properly for the first year’s operating expenses. ► Experienced business people suggest having enough capital in reserves to operate for one full year.

Inability to Stay Competitive ► Businesses compete using their product mix, product quality, service, price, location, reputation, or expertise. ► Creative businesses will often find a way to stay competitive, while marginal businesses will go under.