Business Failure Worksheet 4 exercises with answers PDF

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4 exercises with answers on business failure (missing words, definitions, true or false, short answers questions about the participation of a perfume company)...

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Business Failure 1. Missing words Around 36,000 companies failed in the UK in 2009.

Many of these businesses had been

operating for less than twelve months. Most firms find it more difficult to survive when there is a ______ recession _____________ than when the economy is booming. However, some firms will often fail because of poor ______ management __________________, rather than unfavourable economic conditions.

Some businesses fail to find out whether there will be

sufficient ______ demand ____________ for their goods or services, by ignoring market research.

Inadequate planning is also a common cause of business failure.

Some

entrepreneurs are too confident about the likely number of ______ customers ______________ and the prices they will be willing to pay. Others fail to identify all of the ______ words from costs ___________ involved in running a business. This leads them to underestimate the _____ finance _____________ needed to get the business up and running. Hint: words from costs, customers, demand, recession, finance, management,

/6 2. Key terms Match the definition on the left to the correct key term on the right: Definitions

Key terms

1. Where a firm’s total costs are greater than its sales revenues C

a) Break-even

2. Where there is a downturn in economic activity, with falling consumer spending and a reduction in firms’ sales and production G

c) Loss

3. Where a firm’s total costs are equal to its sales revenue A

f)

b) Liquidation

d) Negative cash flow e) Net cash flow Profit

g) Recession

4. Where a firm closes down and its assets are sold in order to pa for an o tstanding debts B

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3. True or false? – one bonus mark for giving a correct reason: 3.1 Cutting back on advertising during an economic downturn (in order to reduce costs) could increase the risks of business failure T/F Reason: during an economic downturn it is important to promote your business as people usually prefer not to spend money on everything except necessities. 3.2 Carrying out market research before setting up a new business will increase start-up costs but reduce the risks of making a loss T/F

Adapted from www.azbusinesstraining.com

Reason: this research can help you to understand whether your product or service will be demanded among your potential customers or not. What is more, it would increase start-up costs because you may spend money on the work of the specialists which will help you to do a market research. 3.3 Profitable firms cannot become business failures /F

T

Reason: it is impossible to say which particular firm is going to fail because of the different situations which can happen in the economy.

/3 4. Short answer questions. Read the short passage below and answer the questions that follow: No passion for perfume! In 2009, fragrance retailer, Passion for Perfume, closed down, with a loss of 185 jobs. The company was set up in 2004 and quickly expanded, opening 45 shops around the UK. During 2006, it generated annual sales of £5.9 million and expected to begin making a profit in 2007. However, the company’s administrators claimed the business had become a victim of “challenging trading conditions and reduced consumer demand”. Attempts had been made by the founders to sell the business, rather than continue to finance its losses, but had not managed to find a buyer. 4.1 Briefly explain why a perfume retailer, such as Passion for Perfume, might experience a fall in demand during an economic downturn: From my point of view, such product as perfume is not a necessity for people during the economic downturn. Because of that the demand may decrease as customers are going to buy more inferiors than luxury products.

/3 4.2 State two other possible reasons why Passion for Perfume did not succeed: Firstly, the company’s administrators and managers were not interested in spending money on advertising and promote their business among people. Secondly, “Passion for Perfume” maybe was not efficient enough and didn’t use new technologies while making their products in order to improve production.

/3 Adapted from www.azbusinesstraining.com

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Adapted from www.azbusinesstraining.com...