Causes of Business Failure
- 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
- In 2021 an average of 8% of businesses in EU countries 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 to 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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Exam Tip
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