Business failure

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Joe's was one of the businesses to fail in 2009.

Business failure refers to a company ceasing operations following its inability to make a profit or to bring in enough revenue to cover its expenses. A profitable business can fail if it does not generate adequate cash flow to meet expenses.[1]

Reasons

Businesses can fail as a result of wars, recessions, high taxation, high interest rates, excessive regulations, poor management decisions, insufficient marketing, inability to compete with other similar businesses, or a lack of interest from the public in the business's offerings. Some businesses may choose to shut down prior to an expected failure. Others may continue to operate until they are forced out by a court order.

The Small Business Administration, in an article on small business failure,[2] lists additional reasons for failure from Michael Ames book on "Small Business Management":

  • lack of experience
  • insufficient capital
  • poor inventory management
  • over-investment in fixed assets
  • poor credit arrangement management
  • unexpected growth[3]

There are many opinions about the most important reason that businesses fail:

  • Peter Drucker claimed the most important reason that businesses fail is because management didn't ask "what is our business?" in a "clear and sharp form."[4]
  • Eric T. Wagner, who has 30 years experience as a serial entrepreneur, says that entrepreneurs fail when developing new products because they "retreat to a cave" instead of thoroughly understanding their customers needs. A survey of more than 1000 Australian SME business owners found that business failure was most likely because of an inability to manage costs.[5]
  • According to a study by Industry Canada, "the main reason for (business) failure is inexperienced management. Managers of bankrupt firms do not have the experience, knowledge, or vision to run their businesses".[6]

After Closing

After, a business may be dissolved and have its assets redistributed after filing articles of dissolution. A business that operates multiple locations may continue to operate, but close some of its locations that are under-performing, or in the case of a manufacturer, cease production of some of its products that are not selling well. Some failing companies are purchased by a new owner who may be able to run the company better, and some are merged with another company that will then take over its operations. Some businesses save themselves through bankruptcy or bankruptcy protection, thereby allowing themselves to restructure.

References

  1. ↑ Cash Flow: The 10 Rules of Cash Flow 101
  2. ↑ What are the major reasons for small business failure?, U.S. Small Business Administration, retrieved 2013-11-29 
  3. ↑ Ames, Michael (1983), Small Business Management, West Group 
  4. ↑ Krames, Jeffrey (2008), Inside Drucker's Brain, Portfolio - Penguin Books, p. 163, ISBN 978-1-59184-222-4 
  5. ↑ Top reasons for small business failure: Study, Smart Company, 12 April 2013 
  6. ↑ Baldwin, John; Gray, Tara; Johnson, Joanne; Proctor, Jody; Rafiquzzaman, Mohammed; Sabourin, David (1997), Failing Concerns: Business Bankruptcy in Canada, Minister responsible for Statistics Canada, ISBN 0-660-171201 

External links

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