Why Do Small Businesses Fail

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

After the easy start; the owner and his deputies do not take much care of most of these units and face troubles leading to premature closure. Let’s know why small businesses fail.

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

Why do small businesses fail

  1. Underpricing 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 have trouble without realizing it.
  5. Going into business with little to 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 for 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 which
  11. Starting factories or showrooms in the 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 being careless
  17. Japanned Expansion
  18. toying the wrong altitudes toward business & interest- groups
  19. Inventory mismanagement
  20. Too much capital going into fixed assets

Causes of business failure

Dun & Breast, eat draws 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 business failure was caused for bad management. This may be seen as under:


The above figure shows 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 in 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 thoughts on “Why Do Small Businesses Fail”

  1. 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

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