Final answer:
If a business doesn't adopt the going concern principle, it means it's not expected to operate in the long term, leading to difficulties including loss of investment and credit. Persistent losses may result in the business either limping along or shutting down, with exit being the long-term consequence, affecting workers and the economy.
Step-by-step explanation:
If a business does not follow the principle of going concern, it implies that the business is not expected to continue its operations in the foreseeable future. This can lead to a variety of adverse outcomes, like an inability to attract investment, difficulties in obtaining credit, and a general lack of confidence from suppliers and customers.
In situations where the business is making losses in the short run, it might continue to operate if it can cover its variable costs with revenues. However, if the losses persist and revenues do not cover variable costs, the business may either limp along in the short term or opt for a shutdown to minimize further losses. Over the long run, persistent losses cannot be sustained, which leads to an exit from the market—meaning the business ceases production and essentially goes out of business. Several factors can contribute to such losses, including poor management, unproductive workers, stiff competition leading to reduced profits, or shifts in market demand and supply. This exit can have ripple effects, such as loss of income for workers, job losses, and impacts on subsidiary businesses and the broader economy. Although business exits are challenging for those directly involved, they can also be part of a natural economic cycle that allows for resource reallocation towards more profitable ventures.