Home Business Why So Many Small Businesses Fail

Why So Many Small Businesses Fail

Why So Many Small Businesses Fail

It is small things that matter the most! So, goes one wise saying. As much as you would like to agree with the thinking behind that proverb, some small things like small businesses might fail to observe such. Consequently, many companies flop prematurely to the discouragement of the entrepreneurs at stake. Ironically, some people seem to be successful serial entrepreneurs- jogging from one achievement to the next. Admittedly, no small business entrepreneurs start a venture with the mission of failing. All are usually excited about their new sojourn and would go breaking the news to everyone. 

Why small businesses fail

Words from Dr. Graeme Edwards summarizes the most significant reason for small business failure; it is not the plan that is crucial- the planning is. Guessing from those thoughts, the area where problems emanate is at the entrepreneurial level.

Inadequate planning

Or should we say, lack of planning? Short-term and long-term planning is essential to any business. All ventures that do not incorporate future operations in their drafting are going to fail before they realize. In fact, long before they fail, those with experience will be able to cite several reasons for failure. In your plan, envisage in writing where your business will be in every quarterly period to annual projections. Ensure to enlist the goals for your business. Draft a to-do list and alternatives for your business.

Leadership problems

Leadership is comparable to the backbone of an animal. Assuming we are such with a malfunctioning backbone, we can’t do much. To avoid being in such a scenario in which you cripple your business, you do well to have the skills and competencies to oversee your industry. 

For a fact, you can’t forgo this essential skill in business if you would like to see your business plan run through its short-term and long-term goals. Financial and employee management requires your tight grip on leadership to control with good results. Leadership inadequacies will trickle down the chain affecting every aspect of the industry.

Forgoing customer needs

Almost all companies agree to the idea that the customer is always right -even when he/she is not. As such, they claim that you should put your customer as the number one entity of the business –sometimes even before the entrepreneur. Theoretically, many business owners would preach that message, but a small percentage will remember to follow it to the latter. Losing a grip on the customers is the worst thing that any company would want to experience. Be quick to respond to their dissatisfaction positively and promise an improvement next time. Many businesses that fall fail to keep in touch with customer-needs provision.

Absence of a succession plan

Businesses that aim at running for a long time and lack a succession plan are pending failure. Without a future team to manage the industry, the business remains at the mercy of the existing management. Additionally, such businesses might fail to recruit or train the next in management to establish it in the future. Family companies especially need to train the next of kin to manage the industry if the old ones recline from management. 

Old age, departures as in resignations, retirements, and death might unexpectedly hit small businesses that have no succession plans pulling them to the ground.

Inappropriate geographical location

Choosing the wrong location for a business has been one reason for small business failure. Having the right product but not knowing the market nearby to sell your goods is a problem that is difficult to go around. If the infrastructure is wanting, that renders a small business inaccessible to clients. As such, others in the industry add pressure by outcompeting the former out of operation. 

Many businesses resort to raising the commodities price to get sufficient funds to run, which makes product acquisition more difficult. Instead of playing to the company’s advantage, it down-plays it.

Lack of operating capital

As is common to small businesses, lack of capital can make the business go out of operation. Capital is essential in the whole operation of a company. Money is critical in paying operational bills, ranging from water, electricity, etc. remitting loans, licenses, rent, and salaries is a requirement that capital settles. In fact, for small businesses, capital is not the only thing- it is almost everything. A lack of it is the genuine root cause of small businesses’ failure.

Premature scaling

Small companies fail due to scaling problems. Being overambitious leads to hiring people prematurely and failing to account for their operational cost. For small industries, mass hiring is a killer to avoid. Unfortunately, some companies have done premature scaling and found themselves out of operation even before landing on the market scene. Additionally, spending too much on marketing strategies is deadly since most might require a lot of financing, crippling the young company.

Low or no profits

Most small businesses pending failure suffer from profit’ malnutrition.’ As such, they cannot grow due to a lack of funds to support it.If a company makes no profit, it is impossible to attract investors who are always interested in the profitability of the industry. Consequently, many starve out of operation due to having no returns to their resources.

Macroeconomic factors

I saved this reason last for good reasons. Just in case you would know, you have no grip on its impact. As Dr. Edwards put it regarding the significance of planning, this aspect stands on its own. Small businesses have seen destruction due to macroeconomic factors such as war, inflation, business cycles, recessions, natural disasters like earthquakes, etc. For instance, the current COVID-19 pandemic has affected many businesses. To learn about profitable business to start this season, visit instant loans 


The worst that can happen to a newbie in the field of entrepreneurship is having to fail and never get back. The discouragement that comes with a failed-venture can be hard to overcome. Many small businesses that fail will do well to learn from their mistakes and inadequacies to spring on their feet again. As we have briefly discussed, the majority of problems that cripple businesses are associated with the skills in planning and management. 

Additionally, entrepreneurs who do a prior market search are in a better position to avoid many pitfalls, such as the inappropriate location of the business.