Page 32 - Business Principles and Management

Chapter 1 • Characteristics of Business

FIGURE 1-4 Causes of Business Failure

PRIMARY REASONS FOR FAILURES PERCENT OF FAILURES

ECONOMIC CAUSES 64.1
Industry weakness, low profits, and low sales

FINANCE CAUSES 23.9
Heavy expenses and burdensome debts

DISASTER AND FRAUD 6.7
Hurricanes, floods, and theft

NEGLECT CAUSES 3.7
Business conflicts, family problems, and poor work habits

STRATEGY CAUSES 0.9
Overexpansion and difficulty collecting from customers

EXPERIENCE CAUSES 0.8
Inadequate planning and inexperience

Source: Adapted from Business Failure Record. The Dun & Bradstreet
Corporation, 1992.

business probably owes money to other firms that will also suffer a loss because
they cannot collect. In fact, a business that cannot collect from several other
businesses may be placed in a weakened financial condition and it, too, may fail.
Successful businesses also have economic and social responsibilities. The
privilege of operating a business with the potential of making a profit also car-
ries a number of obligations to a variety of groups that serve and are served by
the company. Many years ago, an executive of a major business association de-
scribed the many responsibilities of business owners:
• TO CUSTOMERS: That they may have the best at the lowest cost, con-
sistent with fairness to all those engaged in production and distribution
• TO EMPLOYEES: That their welfare will not be sacrificed for the benefit
of others, and in their employment relations, their rights will be respected Success tip
• TO MANAGEMENT: That it may be recognized in proportion to its
demonstrated ability, considering always the interest of others
• TO COMPETITORS: That there will be avoidance of every form of unfair
competition To demonstrate their commit-
• TO INVESTORS: That their rights will be safeguarded and they will be ment to social responsibility,
kept so informed that they can exercise their own judgment respecting most businesspeople are very
their interests active in community and civic
• TO THE PUBLIC: That the business will strive in all its operations and organizations. You should
relations to promote the general welfare and observe faithfully the laws find ways to donate your time
of the land. and abilities to activities that
assist others and that help ad-
Just as every business has an obligation to the community, the community has dress community needs. You
an obligation to each business. Society should be aware that owners face many will feel very good about the
risks while trying to earn a fair profit on the investment made in the business. service you provide.

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