Top 10 Reasons Small Businesses Fail

"According to statistics from Dun & Bradstreet, 88.7% of all business failures are due to management mistakes.
Some of the leading management mistakes that lead to business failures are: going into business for the wrong
reasons; the entrepreneur gets worn-out and/or underestimated time requirements; family pressure on time and
funds; pride; lack of market awareness; the entrepreneur falls in love with the product/business; lack of financial
responsibility and awareness; lack of a clear focus etc. The broad causes that lead to a business failure are
summarized below.

Lack of Industry Experience

    The internal resources of a firm must match the needs of the environment to which the firm caters. Lack of
    experience in the industry will lead to poor organization of a firm and its resources.

Inadequate Financing

    Financing is the lifeblood of growing a business whether in the startup phase or in a later stage. It is not a
    matter of unavailability of funding, but the lack of planning for funding to support opportunities for growth.

Lack of Adequate Cash Flow

    Cash flow is the measure of a firm’s ability to maintain sufficient funding to meet its expenses for the day-to-
    day activities of the business. 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.

Poor Business Planning

    Nine out of ten business failures in the United States are caused by a lack of general business management
    skills and planning . A good business plan helps identify the mission; cost structure; market; external
    influences; and strengths and weakness of a business.

Management Incompetence

    Ninety percent of business failures are associated with “management inadequacy”, which consist of either
    management inexperience or incompetence .  

Ignoring the Competition

    Customers are always looking for the best deal, or at least, a better deal. And if the competition offers better
    products, services, or prices, the customers will succeed at the expense of the business.

Unworkable Goals

    It is one thing to set goals and another thing to set workable goals. Setting realistic goals, within the bounds
    of acceptable risk taking and optimism, is important.

Diminished Customer Base

    Diversifying the customer base is an important factor in building the business. Being flexible enough to adapt
    to new trends and ideas is important to staying in business.

Uncontrolled Growth

    Uncontrolled growth of the business can also cause it to fail if not handled appropriately. Successful growth
    requires a professional management team, flexible organization, and proper systems and controls.

Inappropriate Location

    The old real estate maxim — location, location, location — may be even truer in the small business world.
    Location may not be applicable to all types of businesses, but when it is, it may be critically important.

Poor System of Control

    While setting proper goals to manage the business, a system of controls is also needed to measure
    performance. Checks and metrics help owners manage organizational activities.

Lack of Entrepreneurial Skills

    A small firm’s performance outcome is a function of many variables, including individual owner
    characteristics, owner behaviors, and environmental influences. Entrepreneurs generally have a high need for
    achievement and social awareness, and they are high risk takers .  "*

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*This article is an excerpt from an Institute for Independent Business article published under the same name.  
To download the complete MS Word article click Top 10 Reasons Small Businesses Fail.

Patrick Smyth is a trusted business advisor and mentor.  He improves business performance through effective
change management, leadership, and marketing.  His focus on business outcomes, growth, objective setting,
team building, and communications builds sustainable productivity and growth. www.innovationhabitude.com
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