Why Do Businesses Fail? Essay

Words: 1457
Pages: 6

“Bankruptcy is the situation where the firm’s liabilities exceed the economic value of its assets.”, according to Altman:17 (2007). Nowadays there are lots of companies facing financial problems and ending up with bankruptcy. The business failure can be caused by many reasons however the main factor is from internal problems. From my point of view, firms collapsed because the management team did not exercise control efficiently of the business operations. Those poor management can be categorized into three equally important factors which are human resource management, marketing management, and financial management.

Firstly, the company gave employees too many benefits, especially wages. This could not only increase the cost of product,
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Moreover, Olsen and Andeassen also supported that buyers will change their mind to other brands if they receive poor service.

Apart from human resource and marketing management, poor financial management is also one of the most important reasons for business failure. In accordance with Thornhill and Amit(2003):500, “Failure of young firms will be attributable to deficiencies in financial management.”. If the company cannot gain income to cover all cost of production, the situation will turn to be more severe. For example, Connaught, the social housing firm, has collapsed as a result of cash flow problem, according to Guardian (2010). Guardian (2010) reported that the government cut their spending while the company was facing with its cash flow system. Therefore, the firm had not enough money to operate the business, finally it broke. However, Bradley and Cowdery (n.d.) claimed that lack of cash flow could make the company’s ability to reinvest struck for future profit in terms of ordering inventory and doing advertisement. Moreover, Jickling and Raab (2006) provided a case study of Hedge Fund’s failure and stated that if the firm could not gain as much income as it expected, it could not attract new investors to invest in organization. On the other hand, if the company