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.
- Inadequate front-end planning
- Insufficient capital for start-up and back-up
- Inexperienced management
- The wrong location.
- Inventory mismanagement
- Too much capital in fixed assets
- Poor credit practices
- Unplanned expansion
- Having the wrong attitude.
- Inadequate records and financial knowledge.
- Unwillingness to employ and work with a banker, accountant, and a lawyer.
- Lack of managerial foresight.
The business owner did not prepare a business plan, feasibility study, or cash flow projection.
Even the most dedicated workaholic cannot overcome ongoing capital deficiencies due to start-up losses.
The business owner had insufficient experience in the management and day-to-day operations of the business or of any business.
There was low customer traffic at the location. The location did not have an area for expansion. The characteristics of the neighborhood were changing. The customers were out there, but the business was not convenient because of driving and parking distance, transportation costs, or employee unwillingness to live in the community.
The business owner had too much of the wrong inventory.
The business owner failed to properly anticipate the cost of equipment and real estate needed to start and expand.
The business owner failed to properly extend and control credit policy and practices.
If one location is doing well, a second doesn’t mean the business will do twice as well unless management is available.
The business owner wasn’t ready to work longer and harder than ever before.
The business owner failed to keep adequate records and lacked financial knowledge needed.
The business owner failed to seek professional assistance in areas which he or she lacked skills and knowledge.
The business owner failed to build staff to compensate for the weaknesses of the founder or owner; failed to adequately compensate second-line management.