Why Firms Exit/Bankrupt?

774 Words4 Pages
1. Do not have competitive products Businesses’ probability of success depends on the idea of the product and the way they bring the ideas to life. This is the first fundamental element of businesses, other factors can not replace, they only supports it. A competitive product is a product that new and beyond other products in many aspects. A competitive product is not simply a product with better price and quality. These two elements are important but the most essential is to ensure that revenues will cover all the costs, and moreover, bring profit. This applies to all products, services, high-tech industries as well as handicraft manufacturing business. If the products better, cheaper but do not gain revenues to cover the necessary expenses, firms will become bankrupt as well. Thus, the competitiveness of a product is not decided by a plan, a business project, it is completely decided by the market. Firms that do not have competitive products should be withdrawn from the market early to limit capital losses. It is possible to set up new businesses and products is highly competitive in a short-term, but it is difficult to maintain it in the long-term. Example Red bull was introduced in 1987 and became popular in 1992 – 2008. But after that it was gradually replaced by Sting and Revive. Red bull’s glory times is gone. 2. Large personal expenses Many entrepreneurs, especially who run small businesses has mistaken that they can have a fixed income like employees. It seems that many entrepreneurs do not know or forget that their income is what's left after less all expenses and investments. This income in the first period is not much, while workers' income is stable. Many businesses lately recognize the reason why banks easily approve most loans of businesses, including the use for personal purposes such as upgrading homes, villas or
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