Why Businesses Fail


Why Small Businesses Fail

By ACS Distance Education on October 29, 2016 in Business and Management | comments

In the real world, long  term success can be hard to achieve.  Sometimes enthusiasm and optimism can cloud the owner’s vision of reality and poor decisions are made.
Small businesses have a greater chance of success when they know and plant to counter any problem before it ever occurs. when you have lots of contingencies in place, you will react faster and avoid small problems from ever growing into big ones.

More than 90% of small businesses may well fail, but it may be less than 50% of those that plan well that ever fail. If you plan well and you persist in your efforts to succeed, your chances of success can be even higher.

A small business has failed when it is:

  1.     Unincorporated and declared bankrupt – a legal process of distributing among the creditors the property of the business or person who cannot or will not pay their debts.
  2.     Incorporated and either forced into liquidation or voluntarily closes down because it cannot pay its debts and faces a cash flow problem.

If a business owner decides to cease operating because of ill health, the loss of a partner, or any other personal reason not associated with financial problems, then the business is not described as a failure!

Small business failure is not usually caused by one single factor but rather a combination of several factors. The two main reasons being:

  •     Lack of capital and
  •     Lack of management expertise.

Some of the many reasons small businesses fail are:

  • Failed to plan
  • Lack of information
  • Leadership crisis
  • Inaccurate record keeping
  • Failed to delegate
  • Complacency
  • Failed to seek advice
  • Incorrect marketing strategy
  • Under insured
  • Poor location
  • Lack of financial planning
  • Negative cash flow
  • New competitors
  • Illness
  • Supplier problems
  • Not enough sales
  • Poor use of external support services
  • Economic downturn
  • New taxes
  • Changes in government policies
  • Insufficient capital
  • Partnership problems
  • Lack of management experience
  • Staff difficulties
  • Incorrect pricing policy

Remember: ‘Small businesses don’t plan to fail, they fail to plan!’