Top Reasons Why Small Businesses Fail

Last updated on March 8th, 2016 at 04:20 pm

ftNow, starting a small business can be one of the most exciting and ambitious things that you do, but it doesn’t come without its hazards and risks, for example, figures from stats brain show that 44% of businesses fail by year 3 and stats shown in a topdegrees.net infographic show that 30% of small businesses of small business are losing money, with just 30% breaking  even and only 40% being profitable.

So, its important to tread with caution when starting your business and one way to do this is to be aware of the main reasons that businesses fail so you can take steps to ensure that you don’t fall foul of these hazards. So, what are these hazards; what are the top reasons that businesses fail. Well, according to the figures compiled by stats brain, the top 3 reasons start-up business fail are:

1.Incompetence (46%), which  relates to specific issues such as: Emotional Pricing, Living too high for the business, non-payment of taxes, no knowledge of pricing, lack of planning, no knowledge of financing, absence of accounting reports and controls, no experience in record-keeping.

2.Unbalanced experience or lack of managerial experience (30%), which specifically relates to weak credit granting practices, overly rapid expansion and poor borrowing practices.

3.Lack of Experience in line of goods or services (11%) which relates to carrying inadequate inventory, no knowledge of suppliers and wasted advertising budget.

The statsbrain.com report also showed the top 12 management mistakes and I have outlined the top 5 below and these were:

  1. Going into business for the wrong reasons
  2. Advice from family and friends
  3. Being in the wrong place at the wrong time
  4. Entrepreneur gets worn-out and/or underestimated the time requirements
  5. Family pressure on time and money commitment

In the retail store sector where start up failure rates, in the first five years, sit at a massive 80%, the top 3 reasons for failure are: poor management, tough competition and poor marketing, according to an infographic by top-business-degrees.net

infographic

Now, this information may be scary, but it is not meant to be scary, its meant to open your eyes to the risks of starting a small business so that you are able to effectively manage those risks.

Recommended reading for entrepreneurs

The Financial Times Guide to Business Start Up 2015: The Most Comprehensive Annually Updated Guide for Entrepreneurs (The FT Guides)

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