Reasons for Business Failure (Edexcel IGCSE Business)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
Why Businesses Fail
Business failure is a risk to both new and established businesses
In 2021, an average of 8% of businesses in EU countries failed
The highest failure rate was in Estonia, where almost one in four businesses failed
The lowest failure rate was in Greece, where just over 2% of businesses failed
New businesses are often more at risk of failure than well-established businesses
This is often due to lack of management skills, limited experience or cashflow problems during the initial start-up phase
New business owners can also be overwhelmed by the volume and variety of tasks they need to carry out
Market research is unlikely to be detailed and small business owners may lack the skills to understand findings and make effective decisions
The Main Reasons why Some Businesses Fail
Financial Factors | Poor Management |
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External Factors | Overtrading |
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Examiner Tips and Tricks
It is worth remembering that making losses does NOT always mean business failure. In many cases businesses make little (if any) profit in the early stages of operation. This is because they invest in order to increase sales, which should increase profitability in the long run
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