Business Failure

1. List and define the two forms of business failure.
Insolvency – occurs when a business closes itself down due to inability to meet financial commitments and sells its business assets to pay debts.
Bankruptcy – a legal process imposed by the courts that occurs when a business closes its doors because it will not or cannot pay its debts.
2. Identify the six basic categories of resources used to produce goods and services.
Cash and funds – money readily available to buy other resources.
Working capital – the amount of cash reserves (liquidity) a business holds to meet short-term debts
People/labour – workers in the business
Capital assets – tangible property that cannot easily be converted into cash and is usually held for a long period. E.g. property, machinery.
Raw materials – inputs to the production process
Component parts – manufactured parts that go into production of goods and services
Time – a non-renewable resource
Expertise and knowledge – valuable resources to any business
3. Define the following terms and then use each in a sentence to demonstrate your understanding.
a) Benchmarking – comparing the performance of a business to industry standards or the market leaders in the industry.
b) Key Performance Indicator – criteria or measures used to evaluate performance of an organisation in terms of effectiveness and efficiency.
c) Social Responsibility – ethical or social responsibility where a government, organisation or individual has a duty to society at large; is about improving the quality of relations with stakeholders.
d) Financial Indicator – measures that are often closely linked with efficiency.
A Key Performance Indicator of a financial indicator or measure would be profit or liabilities, however a KPI that measures non-financial performance would be social responsibility. The indicator of benchmarking can be both a non-financial and a financial measure.

4. Distinguish and explain the difference between...