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Management

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Critically analyses why a business can fail during the early stages of operation in a context you are familiar with.

Bakr and Ellis(1987) There is no generally accepted definition of business failure,but from the economic approach,it can be defined as firm earning a rate on return on investment which is less than the company’s opportunity cost.
Starting the new business at the beginning of stage is the most difficult period.
There are no guarantee that the business is going to success or fail in the future, it all about how the owner of the business to handle the situation, catching the change in market,beating the competitor and making profit year over year.There are also thousands of new born business suffering from the failure period which lead to the company go burst and lose everything. The new born business can manly divide into two parts,the first one would be the Internal factors such as,financial problem,difficultly of getting trust from the suppliers, cost problem, management problem etc. The second one would be external factor,such as the business environment,government measures,taxation etc. So it is very important to know what exactly makes the difference between the succeed and a failed company and how the Entrepreneur is going to handle the situation to avoid the company go bankrupt and gain some experience form the failed examples to avoid the same situation happen when setting up the business during the first stages. There are also some positive and negative examples to be used in the following essay to let the reader understand more about how and why a business is very easy to fail during the first stage.

There are several main internal reasons why the new born business would be very easy to suffer from the financial problems at the beginning stage According to John(2007) Financial problems arise for a range of reasons, most commonly because the planning was faulty (which is common given the uncertainty of new ventures),or sources of cash-such as venture capital or bank financing-dried up.
Financing dried-up is actually a deadly and common weakness for all the business, no matter which stages is the company in, it still can lead a company stop running immediately and get into some serious problems,For example,the company can not purchase any raw material or equipment with out enough capital or even have the right to negotiate with the suppliers,because it is very risky to trade with the company suffering cash flow problem, especially for the new born business, the growth business usually do not have a very experience management team to management the cash inflow outflow,without the accurate data to support, the manager can’t make a wise decision which may lead to the situation even worse and because of the credit issue,in this situation, the bank would also refuse to help, because the risk to help a new born business which is suffering from the cash flow problem is too high. State of market is also one of the main reason for the bank to consider. The future of the business, is it come with a growth,bright future or suffering from the recession. According to.Jerry(2009) in the business, especially critical of the early stages of the business that you diligently control costs.Many businesses fail in their early years because they do not have enough funds to carry on operations until business grows sufficiently. After developing the innovation products that bring into market,because of the financing problem and credit problem,the new born business would be very difficult to financing form the bank or other private credit markets to keeping running on until the business goes into the mature period,the new born business may directly goes into bankrupt or taken over by some other existing business with huge capital with relatively low market price. Financing problem is not only the weakness for the new born business but also existing in some mature business,once there is a cash flow problem in the company,the whole company can be go through some very tough time.According to the latest news from China Daily,One of the biggest Property development company in China, Agile Property,is suffer from the financing difficulties,facing with more than 1 billion USD loans to repay, and because of offering the bribes to the local local officials, the chief director of the company was caught by the administrative agency,the stock price of the company drop immediately and the company is now suffering from the financial problem with difficulties of collecting the funds form the stock market to keep the operation running.Also, Suzy and Denise(2014) mention China’s property market has cooled sharply since the start of the year. New Home sales volumes were down 12% in September compared with a year earlier. New home prices were also down in 69 of China’s 70 biggest cities. The market performance is suffering form the recession, at the same time the company also suffering from the financial difficulties which makes the situation even worse. Financing dried-up is one of the most deadly weakness for the company,for all the existed company not only for the new born business, it will lead the company goes into recession in sale,lose the competition or the worse could be goes into bankrupt

Management team is also a very important component of the new born company,Is the management team or person experienced or not can directly influence the development of the new born business. James and Brad(2012)reference The failure rate for new small business is fairly high. Many people start a business without considering the difficulty of the process One of the major reasons for the failure is that the owner does not practice effective management skills, Many new business owners have never been managers or have managed only a specialized part of another business.They have not had the experience of being responsible for all aspects of managing.
According to the website THE CHALLENGES OF GROWING A BUSINESS(2009). Good stock control and effective supplier management tend to become increasingly important as businesses grow. The level of the stock also need to be carefully noticed,the inventory turn over period, the peak season and the fast consumer goods,all of the stock need to have a clear number and need to be prepare in advance, reduce the delivery cycle,in order to deduce the financial pressure is also the management team should be solve. However the new born business do not have such the accurate number to support the business to be prepared in advance,the data from the competitor can only to be a reference,because each business, they have their unique situation,such as location,customers preference and custom,etc. The dissatisfaction from the customer may make the new born business lose the customers which may lead the business get into stuck and that’s the reason why so many existing experience business find it is very useful to establish Management standards and Quality control systems,in order to provide the best convenience to the customer and the most stable,reliable service to the consumers to create the customer loyalty and keep the customer in the business. Wong(2010) also mentions Management can provide company resources, funding, time to work on the project, decisions on matters outside the reach of the team and authorization to access and process the information. An experience management team can handle the sudden situation, The future direction of enterprise and predict the development of the market,providing the latest and valuable information to the board of director, prepare the needed funds in advance,solving the cash flow problem. However, the new born business won’t have such an mature management team to handle the daily routine step to step which may lead to the business very easy to delay or goes wrongly and lead to the damage on company’s reputation.

There are also some external factors which may influence the business such as economic environment,governmental measures which are more variance and uncertain,the situation is not controlled by the business people and it may change over time which is even more risky for the new born business, the external factors are like some extra burden for the new born business to suffer with. However, external factors is not always negative,it can also come with some positive effect. Kevin and Alex(2007) mention External factors have an impact, but then also mean more could be done next time. Being tough means you can deal with and learn from failure,and are more prepared bear responsibility. For example,General Motors (GM),one of the biggest and most successful motor company in the US which founded in September of 1908. However,according to Peter(2009)’s report, GM company, it ceased to exist during 2009, and control was handed over to turnaround executive Al Koch. Thanks to $19.4 billion in loans and $30.1 billion more in debtor-in-possession financing during the 2008 financial crisis. The 2008 financial crisis,the economic recession is really a disaster to the whole world.People stop buying goods and trading goods that frequently.During the slump period, the number of sales in GM was also affected from the financial crisis,coming with a sharp decrease in sales that even can not cover the operation cost of the company. However,5 years time latter,the restructuring of the GM company had done a great job on recovery,According to Zachary(2013) GM's share price is up an impressive 21% in 2013 with unpredictable growth over the past five quarters.After the Company restructuring,the GM is using the completely new management team and new management method to manage the company with improving technology and innovation in the product, the company really getting rid of the past negative scandals and reborn to a better,more competitive,healthier cooperate with more prepared responsibility.
Mehdi(2012) also argued, one can rarely point to an external factor as the key cause of the failure. Government Regulation,competition,economic environment and customer defection are among some of the greater factors that can overwhelm even a strong business. The failure must face with several problem,mostly come from the inner part of the business,the external factors is actually the situation which speed up the failure of the company. Like the previous example,the GM company was suffering the failure during 2009, because of the Financial crisis,the recession of the economic. But all in all,the failure of the GM is because of the poor financial management, Failure to innovate,uncomplicated vehicle in the market etc which is all internal factors . The external factors,the economic recession is actually a fuse which directly expose the weakness of the GM company and directly lead the company goes in to bankrupt during the slump of the economic. The new born business is also very easy suffering from the same situation, without a very strong or good financial management,the developing or innovation products that bring in the market,it is very hard to survive and goes into the next period when the economic is suffering from the slump. The external factor is like some extra obstruction and speed up the new born business to fail. A variety of factors combining with each other form the inside and outside of the new growth company can easily shut down.

In conclusion, business fail for variety reasons,mostly can divided into internal factor and external factor. From the internal perspective,the new born business can be influencing by the Technological innovation,Financial management,Marketing Strategies and research,Over trading with limited cash flow,etc. The internal factors is the main reason that lead to the company failed, it’s like the soul of the company,without a healthy and viability soul and system, the growth or even the strong company can barely survival in the market.
Externally,the new born business depends on both Micro and Macro economic in the world which including business environment,government regulation,customer preference etc. The externally reason is like the situation that come from market,the preference of the customers,the situation is more subjective and unpredictable which makes the new born business find even hard to deal with, The combination of both factors form internally and externally makes the growth business suffering the pressure from the both side which can drive the business into bankrupt easily. Business actually failed for more complex reason rather than one reason only. The company also need to summarize the failure reason in the past and try to understand the factors what makes the strong business success, which part can the new born business improve on, such as the close contact to the customer, promising commitment to high-quality product or service,spotting the opportunities in the market,bring some brand new ideas in the market which can give the new born business a competitive advantage to the competitor, There are thousands of reasons that can lead to the company fail,but at the same time those reasons can also be avoided or can be recover in the future. The more difficult the period the growth business go through,the better capability and better future development the new born business can go with.

Reference List.

1)A.Bakr Ibraho. W.Ellis. (1987). Journal of Small Business and Entrepreneurship. An Empirical Investigation Of Causes Of Failure In Small Business And Strategies To Reduce It. 4 (3), P18
John L. Colley (2007) Principles of General Management The Art and Science of Getting Results Across Organizational Boundaries. United State Of America : Yale University Press.P298

Suzy,W Denise,W. (2014). Agile woe compounds China's property problems. Available: http://www.financeasia.com/News/391573,agile-woe-compounds-chinas-property-problems.aspx. Last accessed 02/Nov/2014

Jerry Pradier (2009). Financial Success: Ten Shortcuts to a Profitable Business. Canada: Business development network ,LLC. Content 4

James Burrow, Brad Kleindl. (2012). Project My Own Business. In: Busisness Management. 13th ed. USA: Cengage Learning, 2012. P52

X. (2009). THE CHALLENGES OF GROWING A BUSINESS - AND HOW TO MEET THEM. Available: http://www.infoentrepreneurs.org/en/guides/the-challenges-of-growing-a-business---and-how-to-meet-them/. Last accessed 09/Nov/2014.

Wong, ZaChary (2010). Human Factors in Project Management. San Francisco: Jossey-Bass A Wiley Imprint. Creating Content,Air Cover for The Team

Kevin Uphill, Alex McMillan (2007). Buying and Selling a Business for Wealth. London: Thorogood Publishing. P27.

8)eter Cohan. (2009). After 101 years, why GM failed. Available: http://www.dailyfinance.com/2009/05/31/after-101-years-why-gm-failed/. Last accessed 4/12/2014.

Zachary Silver. (2013). Is GM's recovery for real?. Available: http://www.usatoday.com/story/money/business/2013/06/29/gm-recovery/2474423/. Last accessed 4/12/2014.

10)(Mehdi Rezazad (2012). The Model Entrepreneur: Becoming the Next Business Titan. USA: Xlibris Corporation. P223.)

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