Internal and External Causes of Business Failure

New businesses

• Difficult to test business model without trading

• Easy to be over optimistic

• Competitor response to new entrants can be aggressive

• Lack of experience

• No demand for business idea

• Good idea but poorly executed

• External shocks

Established businesses

Internal:

• Liquidity - cash flow problems can lead to bad debts

• Poor accounting - money not closely monitored

• Management error in a dynamic market

• Wrong strategy - losing touch with customers and market

• Communication - poor dynamic and planning

• Poor quality

• Lack of investment kept for the future

• Poor marketing (elements of the marketing mix)

External:

• Exchange rate - impact on imports/exports

• Interest rates - can increase borrowing costs and affect consumer spending

• Lack of finance

• Recession

• Financial crisis

• Structural change - sales are falling and adaption is needed

• Competition

• Natural phenomena - events beyond control like bad harvests/weather

• Government regulations that place restraint on business activity

• Supplier problems