Why Do Businesses Fail? Essay

1456 Words Oct 6th, 2010 6 Pages
“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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The employer should think about the size of company and the amount of employees he is going to hire. If the firm is small or has just been established and the owner hires too many staffs, it will unnecessarily increase the labour cost.

Secondly, the firm had inefficient marketing strategy. In accordance with Vinturella (2010), it stated that many bankrupt firms failed to get information about market such as customer needs, competition in the market and technology. The company should always keep eyes on consumer demand as well as customer expectation. It is believed that if the firm did not do market research carefully, it would focus on wrong demand product and Webster L. (2008) also stated that the “demand shift” caused an organization to troubles. Moreover, if the firm contains too many brands, there can also be some problems. The company will have to concentrate on many kinds of products as well as many types of customers, which is risky and very difficult in terms of management. The GM Company, for example, had also faced this problem because it consists of at least 3 brands which are GM, Ford, and Chrysler. Therefore, when there was a financial problem in one company, it affected on others like a chain. In addition, customer service is also very significant for the company. It is like the feedback of customers towards the product so that the company can estimate the market demand as well as customer satisfaction. If the firm has poor