Why do small businesses fail

Small business grow in bulk and they die also in bulk. It is because without much of funds, legal formalities and skill one can very easily initiate a small business even for self- employment.

After the easy starting; the owner and his deputies as do not take much care most of these unit face troubles leading to premature closure. Lets know why do small business fail.

The causes of such premature closure of most of the small businesses are provided as under:

Why do small businesses fail

  1. Under pricing or overpricing of goods or services
  2. Extending credit too freely.
  3. Expanding credit too rapidly.
  4. Failing to keep complete, accurate records, so that the owners trouble without realizing it.
  5. Going into business with littler no experience and without first learning something about it borrowing money without planning just how and when to pay it back.
  6. Borrowing money without planning just how and when to pay it back.
  7. Attempting to do too much business with too little capital.
  8. Not allowing of setbacks and unexpected expenses.
  9. Buying too much on credit.
  10. Mistaking the freedom of being injustices for oneself, for liberty to workroom according to whira
  11. Starting factories or show rooms in wrong locations
  12. Making frequent withdrawals to carry habits of personal extravagance into the business.
  13. Plunging in without first testing the waters on a small scale
  14. Underestimating how much time it will take to build a market.
  15. tarring vita little capital.
  16. Starting with too much capital and beencareless
  17. Japanned Expansion
  18. toying the wrong altitudes towards business & interest- groups
  19. Inventory mismanagement
  20. Too much capital going into fixed assets

Causes of business failure

Dun & Breast, eat draw on up-to-date files of more than 9. million US businesses to provide information on trends in business failures and starts.

In 1981, they found that 92% of the business failure was caused for bad management. This may be seen as under:


Above figure showing the Causes of Business Failure

  1. Incompetence [44%]: In-ability to run the business physically, morally, or intellectually
  2. Lack of Managerial Experience [17%]: Little or no experience of managing employees and other resources before going into business
  3. Unbalanced Experience [16%]: Not well rounded in marketing, finance, purchasing, and production
  4. Inexperience in line [ 15%]: Little, if any, experience in the product or service before going into business
  5. Unknown [6%]
  6. Neglect [1%]: Too little attention to the business, due to bad habits, poor health, or marital difficulties
  7. Fraud or Disaster [1%]: Fraud: misleading name, false financial statements, premeditated overbuy, or irregular disposal of assets. Disaster: fire, flood, burglary, employees’ fraud, or strike [some disasters could have been provided against through insurance]

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2 comments for “Why do small businesses fail

  1. Ute Riebow
    March 6, 2019 at 2:14 PM

    Dear Sir or Madam
    I am a teacher of English at a technical university and give Business English Courses for students. I am writing to ask you whether you allow me to use a part of this text as the basis for some exercises. I liked it a lot and it would suit the content of my course perfectly.

    Yours faithfully

    Ute Riebow
    Head of English Dept.
    Language Centre
    Brandenburg University of Technology Cottbus-Senftenberg

    • rasel
      April 5, 2019 at 6:22 PM

      Thanks, Ute Riebow for showing interest in our website, Yes you can use it.

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