Page 44 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 1 Understanding business activity
Business plan: see Chapter 3,
page 29.
Objectives: see Chapter 5,
page 57.
Cash flow management:
see Chapter 20, page 258.
42
Marketing: see Chapter 10,
page 139.
Finance: see Chapter 19,
page 245.
Globalisation: see
Chapter 26, page 333.
Poor planning and lack of objectives
The lack of a detailed business plan, covering aspects such as marketing and
finance, as well as detailed costings and profit predictions is often a cause of
business failure.
Clear objectives are essential for business success. New business owners oft en
fail to set objectives and as a result the business lacks focus and direction.
Poor cash management
A business receives cash from the sale of its products. However, most businesses
sell their products on a credit basis. This means that they will receive the cash from
sales at a later date, for example 30 days after delivery to the customer.
Cash will leave the business when it pays for expenses such as supplies of raw
materials, workers’ wages and other business expenses.
There must be enough cash coming into the business to pay the expenses and
other debts. Sometimes businesses do not manage the inflow and outflow of cash
effectively and they do not have enough cash to pay their expenses and debts.
Poor choice of location
Choosing the right business location is a very important business decision and
one that could be the difference between success and failure. This is often true for
businesses such as retailers, restaurants and leisure facilities, which need to be
located close to their market.
Poor management
Many owners of new businesses may have excellent ideas and products, but they
often lack the management skills and experience to run their business effi ciently.
Failure to invest in new technologies
A business that does not invest in the latest technologies will oft en find it is unable
to compete in terms of price, design and quality. Instead, consumers may buy their
competitors’ products, and the business will fail to survive.
Poor marketing
Successful businesses are ones that identify and then meet the needs of their
customers. Market research is essential to new businesses for identifying the
potential size of the market, the level of competition and finding out what
consumers want. Businesses that do not carry out market research are likely
to fail.
Lack of finance
New businesses often lack the finance they need to take full advantage of the
opportunities available to them.
Competition
All businesses face competition. However, one of the reasons for business
failure is the effect of the globalisation of markets. Globalisation – the growth of
multinational businesses and increased international trade – gives businesses
access to wider markets, but this also means that competition is increased.
Businesses that are unable to compete on price and quality are unlikely to
survive in the long-run.