Business Failure (Edexcel A Level Business)

Revision Note

Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

Internal & External Causes of Business Failure

Internal Causes of Business Failure

2-3-3-internal-causes-of-business-failure-1

The main internal reasons for business failure 

  • Ineffective management is a key cause of business failure

  • Leaders may lack the experience or skills to run a business effectively, especially during periods of crisis

  • Financial factors (e.g. a lack cash flow or working capital) can cause swift business failure as it becomes difficult to operate on a day-to-day basis

External Causes of Business Failure

Flowchart titled "External Reasons Why Businesses Fail" with categories: Economic Challenges, Changes in Consumer Tastes, Legal Factors, Market Challenges, Technological Change.

The main external reasons for business failure 

  • Businesses also fail as a result of factors beyond their direct control

  • A change in legislation can mean that products or processes may require significant redesign or withdrawal

    • E.g. The UK government announced that diesel vehicles are banned from 2030. Car manufacturers are switching to the production of greener petrol and electric vehicles and some have moved production process outside of the UK to reduce costs

      • Several prominent vehicle manufacturers will likely fail in the future as a result of these changes

  • Economic challenges (e.g. rising interest rates or a recession) are a key cause of business failure

    • Especially true for businesses that rely heavily on borrowing or that sell items that require customer to borrow money to finance their purchase

  • The entry of new competitors into a market can cause significant problems for incumbent businesses, who may have to slash prices or spend heavily on promotional activity to maintain their market share

    • If a business has existing weaknesses, the entry of a new competitor can quicken its failure

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Lisa Eades

Author: Lisa Eades

Expertise: Business Content Creator

Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.

Steve Vorster

Author: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.