Why do some businesses succeed and others fail?
Business success and failure: how success is measured, the internal and external causes of business success, and the main reasons businesses fail.
A CCEA GCSE Business Studies guide to business success and failure. Covers how success can be measured, the internal and external factors that help a business succeed, and the main causes of business failure such as poor cash flow, weak management, lack of demand and strong competition.
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What this dot point is asking
You need to explain how business success can be measured, the internal and external factors that help a business succeed, and the main reasons businesses fail. CCEA examiners reward precise points, the internal-versus-external split, and the ability to apply causes of success or failure to the business in the stimulus. This matters because most new businesses do not survive their early years, so understanding why some thrive and others close is central to developing a business.
How success is measured
Success means different things to different businesses, so there is no single measure.
Factors that help a business succeed
Some factors are within the business's control (internal), and some are not (external).
Why businesses fail
CCEA often asks for the causes of failure, especially for new firms.
The main reasons businesses fail are: poor cash flow (running out of cash to pay bills even when profitable); lack of demand (not enough customers, often from poor market research); weak management and poor decision-making; poor planning and unrealistic targets; strong competition taking customers; rising costs that squeeze profit; and overtrading (expanding too fast without the finance to support it). Cash-flow problems are one of the most common causes, because a business that cannot pay its debts on time may be forced to stop trading even if its order book looks healthy.
Worked example: judging causes of failure
A common exam task is to identify why a described business is struggling.
Why this matters
Success and failure connect to almost every part of the course: cash flow, finance, marketing, operations and managing people. Understanding the causes explains why planning, finance and good management matter, and it sets up the study of business growth, because growing carries its own risks, such as overtrading. In the exam, the most valuable skills are splitting causes into internal and external and judging which factors matter most for the specific business in the stimulus.
Try this
Q1. State two ways business success can be measured. [2 marks]
- Cue. Any two: profit, sales revenue or market share, survival and growth, customer satisfaction, or meeting the owner's aims.
Q2. Give one internal factor that helps a business succeed. [1 mark]
- Cue. Good management and planning, a product that meets needs, marketing, motivated staff, cost control, or cash-flow management.
Q3. State two reasons a business might fail. [2 marks]
- Cue. Any two: poor cash flow, lack of demand, weak management, poor planning, strong competition, rising costs, or overtrading.
Exam-style practice questions
Practice questions written in the style of CCEA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
CCEA Unit 2 (style)4 marksExplain two reasons why a new business might fail.Show worked answer →
An explain question testing AO1 and AO2. Name a reason, then develop why it causes failure, for two marks each.
Poor cash flow: even a business making a profit can run out of cash to pay its bills on time, and if it cannot pay suppliers or wages it may be forced to stop trading.
Lack of demand: if not enough customers want the product, perhaps because of poor market research or strong competition, sales are too low to cover costs and the business makes a loss.
Other valid points include weak management, poor planning and rising costs. The mark is for the reason plus a developed explanation, not a bare list.
CCEA Unit 2 (style)6 marksDiscuss the factors that help a business to be successful.Show worked answer →
An extended question testing AO2 and AO3. Give developed factors, then judge.
Internal factors: good management and planning, a product that meets customer needs, strong marketing, motivated staff, controlling costs and managing cash flow well.
External factors: a growing economy, low interest rates, weak competition and rising demand can all help, though the business does not control these.
Judgement: argue that while external conditions matter, the factors the business controls, especially good management and cash flow control, are usually the most important, because well-run firms can succeed even in hard times while badly run ones fail in good times. A supported judgement reaches the top band.
Related dot points
- Methods of business growth: internal (organic) growth and external growth through merger and takeover, the types of integration, and the benefits and drawbacks of growth including economies of scale.
A CCEA GCSE Business Studies guide to methods of business growth. Covers internal or organic growth and external growth through mergers and takeovers, the types of integration, economies of scale, and the benefits and drawbacks of a business getting bigger.
- Sources of finance: internal and external sources, short-term and long-term finance, and how a business chooses a source that suits its need, cost and circumstances.
A CCEA GCSE Business Studies guide to sources of finance. Covers internal and external sources, short-term and long-term finance such as overdrafts, trade credit, bank loans, share capital, retained profit and grants, and how a business chooses the source that suits its need, cost and circumstances.
- Cash flow forecasting: the meaning of cash flow, completing and interpreting a cash flow forecast including net cash flow and the opening and closing balances, and the difference between cash and profit.
A CCEA GCSE Business Studies guide to cash flow forecasting. Covers what cash flow means, how to complete and interpret a cash flow forecast including net cash flow and the opening and closing balances, the difference between cash and profit, and how a business solves a cash-flow problem.
- Motivation: why motivation matters, financial methods such as wages, salaries, bonuses and commission, and non-financial methods such as job enrichment, teamwork, fringe benefits and praise.
A CCEA GCSE Business Studies guide to motivation. Covers why motivation matters to a business, financial methods such as wages, salaries, bonuses, commission and piece rate, and non-financial methods such as job enrichment, teamwork, fringe benefits, praise and promotion, and how to choose methods that suit the business.
- Business aims and objectives: the difference between an aim and an objective, common objectives such as survival, profit, growth, market share and providing a service, and why objectives differ between businesses and change over time.
A CCEA GCSE Business Studies guide to business aims and objectives. Covers the difference between an aim and an objective, common objectives such as survival, profit, growth, market share and providing a service, why objectives differ between businesses, and why they change over the life of a business.
Sources & how we know this
- CCEA GCSE Business Studies specification — CCEA (2017)
- CCEA GCSE Business Studies microsite — CCEA (2017)