Business failure relates to when a business reaches a point at which it can no longer operate successfully without encountering continuous unresolvable problems. Business failure can be encountered through a number of ways such as: lack of planning, poor management, insufficient capital and overexpansion, amongst many other possible reasons. According to the Head of ABSA’s Small Business unit, small business failure rates are as high as 63% in South Africa within the first two years of trading.
We believe that entrepreneurs should understand their micro and macro environments in order to exploit opportunity and adapt where necessary to create and sustain profitability.
Macro-environmental factors are for example Political, Economic, Socio-Cultural, Technological and Legal environment they are operating in. These factors can be identified through what is known as a PESTL analysis which is a widely-used tool that helps an organization understand the big picture of their macro environment
These factors relate to government type and stability within a countries political framework, regulation and de-regulation trends, employment legislation, tax policy as well as trade and tariff controls.
These factors relate to current and projected economic growth, inflation and interest rates, the impact of globalization and likely changes in the economy.
These factors relate to the population growth rate and age profile, the populations education and social mobility, employment patterns, job market freedom and attitudes to work as well as lifestyle choices.
These factors relate to technological advancements such as the impact of the internet and the reduction in costs relating to communication as well as research and development.
These factors relate to rules, laws and regulations that could have either a positive or negative impact on the business, for example the various legislation relating to labor relations and consumer protection.