Question

Raghav after doing his B. Pharma, degree from a reputed government college started two chemist shops in two different localities of his home town. Encouraged with the success of these shops, he started six more shops in different cities of the State. His strategy was to cut price, focus on lower and middle class patients and open shops near hospitals. He operated on very thin margins. But he was not able to maintain sufficient funds to meet the day to day expenses of the business. The staff of the shops did not give much attention to the customers and there was very poor system of control. Because of this mismanagement he started incurring huge losses and his business failed. Based on the above para identify and explain any four causes of business failure of Raghav.

Answer 1

Causes of business failure of Raghav: 

1. Lack of adequate cash flow: Many small businesses fail because owners have a difficult time projecting what cash will come in every month, and thus, how much can go out. Raghav failed to estimate the correct expense which is required to run the business on a daily basis. 

2. Management incompetence: Raghav worked on very thin margins which led to huge losses as well as he did not have control over his staff. 

3. Diminished customer base: Raghav did not keep a track of his customer base. Competition can cause the customer base to diminish. 

4. Poor system of control: Raghav could not have proper internal control over activities which led to the failure of his business.