10 minor and 6 major faults Surname. Hint he was in a band called Ultravox, and was the key person behind the original Band Aid

Business failure Businesses fail when They run out of cash and cannot pay bills (we covered with liquidity), and so become bankrupt and enter administration, or The profits are not sufficient for the owner to continue Ipads – read and discuss textbook 39.1 on Forbes article on failure. Underlying causes: Not close to customers Product not differentiated enough Poor communication of idea Poor leadership Wrong business model (not profitable)

Business failure Why are Manchester United and Chelsea performing poorly? Is the fault internal to the clubs? Is the fault someone else’s? Internal causes of failure – which lead a business to enter administration: Marketing failure Wrong products or services. Could lead to loss of contracts or demand Financial failure Often follows marketing failure, but may also be caused by overtrading (growing too quickly), or poor management of liquidity

Business failure External causes: Change in technology. iPads – find some examples Lots of examples where selling of product moves online (Amazon started this way with consumers buying books, cds etc from Amazon rather than from HMV, WH Smith etc) Also soft copies of music, books and films (Blockbuster) rather than physical New products – Apple wiped out Nokia with smartphones whist Nokia (with 40% market share) only had simple phones Change in economic conditions Slowdown in growth affects luxury companies in particular and leads to failures (boutiques, holiday companies) Change on exchange rate. Stronger pound means companies making products in the UK and selling overseas lose business

Business failure External causes: New competitors. iPads – examples of business failure, or difficulties from new entrants Many examples – Amazon is a new competitor to so many, Aldi and Lidl to supermarkets, and local supermarket stores to corner shops Banks not lending After the financial crisis, banks have been both unable and unwilling to lend, particularly to smaller firms. May be getting a bit better, but small firms with liquidity problems may not be able to solve them with bank loans

Business Failure –typical patterns A small business may close because the owner is not happy about the size of profits, but mostly businesses fail because either internal and/or external factors lead it to operate at a loss and eventually to run out of cash If a business operates below break-even, this means cash outflows will generally exceed outflows Eventually it will find itself unable to pay a bill, and unless it can raise more finance from banks or shareholders, creditors (those it owes money to) will demand payment, and the firm will move into administration The business will make a loss if: For a new firm the idea or product is not unique/not profitable For existing firms if they are unable to adapt to the threat of new products, new competitors or to a change in the economic environment. This can be a failure of management If they grow too quickly (over trade) Poor management meaning a demotivated workforce, poor decisions, low productivity etc