Why Businesses Fail? | 11 Reasons for Business Failures

Why Businesses Fail?

The U.S. Small Business Administration conducted a study that looked at the reasons for small business failure. Here are the major reasons ranked according to frequency:

  1. Inadequate Front-End Planning
  2. Insufficient Capital for Startup and Back-up
  3. Inexperienced Management
  4. The Wrong Location
  5. Inventory Mismanagement
  6. Too much Capital in Fixed Assets
  7. Poor Credit Practices
  8. Unplanned Expansion
  9. Having Wrong Attitude
  10. Inadequate Records and Financial Knowledge
  11. Lack of Managerial Foresight

Inadequate Front-End Planning

No business plan was prepared; no feasibility study was done and no cash flow projections were done.

Insufficient Capital for Startup and Back-up

Even most dedicated works cannot overcome ongoing capital deficiencies due to startup losses.

Inexperienced Management

Insufficient experience in the management and the day-to-day operations of the business or of any business.

The Wrong Location

Low traffic, no expansion area, changing characteristics of the neighborhood. The customers are out there, but the business is not convenient because of driving and parking distance, transportation costs, and employee unwillingness to live in the community.

Inventory Mismanagement

Too much of the wrong inventory.

Too much Capital in Fixed Assets

The failure to properly anticipate the cost of equipment and real estate needed to start and expand.

Poor Credit Practices

Failure to properly extend and control credit policy and practices.

Unplanned Expansion

If one location is doing well, a second doesn’t mean the business will do twice as well unless management is available.

Having Wrong Attitude

Not ready to work longer and harder than ever before; too much money in trappings and appearance.

Inadequate Records and Financial Knowledge

Unwillingness to employ and work with a banker, accountant, and lawyer.

Lack of Managerial Foresight

Failing to build staff to compensate for the weaknesses of the founder or owner; failing to adequately compensate second-line management.


FAQs Section

What are the reasons for business failures?

The following are the reasons for business failures:
1. Inadequate Front-End Planning
2. Insufficient Capital for Startup and Back-up
3. Inexperienced Management
4. The Wrong Location
5. Inventory Mismanagement
6. Too much Capital in Fixed Assets
7. Poor Credit Practices
8. Unplanned Expansion
9. Having Wrong Attitude
10. Inadequate Records and Financial Knowledge.

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