1.3.4 Why Some Businesses Fail
Instruction :
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Go through all instructions and course details thoroughly before starting each lesson or activity.
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Watch the attached video lessons attentively and take clear, organized notes in your notebook.
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Write all answers for the attached worksheets in your notebook. Make sure your work is neat and properly labeled.
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Revise your notes and completed worksheets after each lesson to reinforce understanding.
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If you face any difficulty or have questions, note them down and contact your instructor or course coordinator for guidance.
Click to download the Video Lecture Handout.
Good morning class. Today, we’re going to discuss an important and sometimes tough topic:
Why do some businesses fail, whether they are new or already established? Don’t worry, I’ll keep it simple and relatable.
First, let’s define business failure. A business is said to have failed when it can no longer operate and has to close down or even declare bankruptcy.
Failure can happen to brand-new businesses as well as companies that have been around for many years.
But remember: new businesses are usually at greater risk because they lack experience and resources.
Now, let’s look at the main causes of failure.
The first is lack of management skills. Many business owners have big ideas but may not know how to manage finances, plan properly, or make good decisions.
For example, a restaurant owner who doesn’t know how to set prices or manage stock might overspend and lose money.
The second cause is **liquidity problems**. This means a business runs out of cash to pay for daily expenses, even if sales look good on paper.
Imagine a small clothing shop that can’t pay rent because customers delay their payments – that’s a liquidity problem.
The third cause is **poor marketing or lack of demand**. If customers don’t know about the product or don’t want it, sales will fall.
For example, a tech company launching a new gadget without advertising might fail to sell enough units.
Another reason is **failure to adapt to change**. Business environments change all the time due to technology, trends, or laws.
Think of DVD rental shops that didn’t switch to online streaming – they disappeared quickly.
Next, **overexpansion**. Growing too fast without proper planning can cause big problems.
For example, a retail chain opening too many outlets in a short time may run out of cash and face quality issues.
And of course, **competition**. Strong competitors, especially big companies, can push small businesses out of the market.
For example, a local bookstore might close down because online sellers offer cheaper prices and faster delivery.
So why are new businesses more likely to fail? There are a few reasons:
they often lack experience, they start with limited money, they don’t have an established customer base, and they may struggle to secure loans from banks.
But here’s the good news: many business failures can be prevented.
Owners can prepare by writing solid business plans, doing market research, controlling their costs and cash flow, hiring skilled staff, and being flexible when conditions change.
So class, let’s recap. Businesses can fail because of weak management, poor cash flow, lack of demand, failure to adapt, overexpansion, or strong competition.
New businesses are more vulnerable due to lack of experience, money, and customers.
But with good planning, research, and adaptability, many risks can be reduced.
By the end of today’s lesson, you should be able to explain the key causes of business failure, why new businesses face greater risks,
and how these failures can sometimes be prevented.
H5P
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