Chapter II. Why Businesses Fail

• Jurisdiction: United States

II. Why Businesses Fail

A. Th ree Main Reasons for Business Failure

1. Bad Management

Poorly managed companies tend to manage their vendor relationships the same way: poorly. Poorly managed companies also tend to be undercapitalized and, as a result, rely on trade credit to finance their cash flow.

2. Bad Decisions

A well-managed company can still suffer from a bad decision by management. This is especially true in the consumer products supply chain. A poor decision regarding style changes, seasonal demand or technology changes can be disastrous. Even a well-capitalized company can quickly become troubled following a poor decision by management. The recent troubles in the retail industry are a perfect example of this.

3. Bad Economy

Most business are susceptible to bad economic conditions. Creditors often contribute, quite unwittingly, to a financially challenged company's problems. Poor credit analysis and lax...