12 Reasons 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. The business owner did not prepare a business plan, feasibility study, or cash flow projection.

  3. Insufficient capital for start-up and back-up
  4. Even the most dedicated workaholic cannot overcome ongoing capital deficiencies due to start-up losses.

  5. Inexperienced management
  6. The business owner had insufficient experience in the management and day-to-day operations of the business or of any business.

  7. The wrong location.
  8. 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.

  9. Inventory mismanagement
  10. The business owner had too much of the wrong inventory.

  11. Too much capital in fixed assets
  12. The business owner failed to properly anticipate the cost of equipment and real estate needed to start and expand.

  13. Poor credit practices
  14. The business owner failed to properly extend and control credit policy and practices.

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

  17. Having the wrong attitude.
  18. The business owner wasn’t ready to work longer and harder than ever before.

  19. Inadequate records and financial knowledge.
  20. The business owner failed to keep adequate records and lacked financial knowledge needed.

  21. Unwillingness to employ and work with a banker, accountant, and a lawyer.
  22. The business owner failed to seek professional assistance in areas which he or she lacked skills and knowledge.

  23. Lack of managerial foresight.
  24. The business owner failed to build staff to compensate for the weaknesses of the founder or owner; failed to adequately compensate second-line management.