15 Common Causes Of Small Business Failure
There are quite a number of causes of small business failure and today I’ll be highlighting 15 of the most common causes of small business failure. This will help you become aware of what’s bringing down so many businesses.
Most of these causes of small business failure as you’ll soon get to see are caused by what I would call poor judgement which maybe at the moment of being made might have seemed like the best cause of action to take.
This just goes to show you that even with the best business model in place, no one is immune to not making a mistake every now and then; you’ve just got to hope and pray that it doesn’t cause the demise of your business 🙂
Instead of looking at all the causes of small business failure as a whole, I decided to split them up into:
- Causes Of Small Business Failure Related To Business Finance
- Causes Of Small Business Failure Related To The Target Market
- Causes Of Small Business Failure Related To Business Management
Let’s now look at the above small business failure causes individually.
Causes Of Small Business Failure Related To Business Finance
- Lack Of Working Capital-This refers to capital that is needed to support the short term operations of a business e.g. day to day operations. Without it, a business can’t last for long.
- Accumulation Of Losses-If you’ve got a negative cash flow, then the probability of your business going under is high.
- Misuse of Funds-This refers to not using funds for the right purposes e.g. embezzling funds for personal gain.
- Lack Of A Reservoir-If you don’t have a reservoir for the “dry seasons”, then chances are your business will capsize should such times occur.
Causes Of Small Business Failure Related To The Target Market
- Decline In Demand-If your target market stops buying from you as much as they did, then your profit margin will be reduced meaning your overhead costs might become too much for you to bear.
- Lack Of Market Information-If you don’t have clear and precise information about the needs and requirements of your target market, then chances are you’ll offer then the wrong products and services hence sealing your fate.
- Limited Market Segmentation-If your market isn’t segmented in a way that fits you and your business, then there’s a risk of it resulting in the failure of your business.
- Stiff Competition-This is one of those causes of small business failure which many entrepreneurs dread of. Many businesses have in the past gone out of business thanks to their fierce competitors.
Causes Of Small Business Failure Related To Business Management
- Poor Management-This is one of those causes of small business failure which I can say are as a result of ignorance i.e. poor management decisions.
- Lack Of Experience & Skills-This refers to not having the right skill set to be in a particular business e.g. you can’t call yourself a baker yet you don’t know how to bake.
- Lack Of Self-Assessment-This is one of those causes of small business failure that many don’t know about. You need to ensure that you asses yourself every now and then so that you remain committed to your goals.
- Poor Choice Of Business-I think this is the most common cause of business failure among entrepreneurs. Many people jump into a particular line of business not because it suits them but because they’ve heard or seen someone else become successful at it.
- Poor Business Location-As one of the causes of small business failure, the location of a business has a great influence in determining the success or failure of a business.
- Premature Expansion-You might risk losing your entire business if you expand your business operations too quickly especially when your business is in its early stages.
My Take On The Above Causes Of Small Business Failure
As an entrepreneur, you should take all the legal measures to ensure that you prevent as many of the above causes of small business failure as you possibly can so that you can eliminate majority of the reasons for business failures.
If you’ve been keen enough, you’ll realize that majority of the above causes of small business failure are internally caused meaning every entrepreneur is more than capable of handling them.
As for the external causes of small business failure e.g. stiff market competition, the best way for entrepreneurs to safeguard the future of their businesses would be to ensure that they offer their customers superior products or services.
If you found value in the above post on the 15 Common Causes Of Small Business Failure, then please comment below and don’t forget to share 🙂
