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    3 Replies Latest reply on Oct 16, 2008 3:20 PM by Lighthouse24

    Reasons for small business failure

    iventures Adventurer

      In his book Small Business Management, Michael Ames gives the following reasons for small business failure:

       

      1. Lack of experience

       

      2. Insufficient capital (money)

       

      3. Poor location

       

      4. Poor inventory management

       

      5. Over-investment in fixed assets

       

      6. Poor credit arrangements

       

      7. Personal use of business funds

       

      8. Unexpected growth

       

      Gustav Berle adds two more reasons in The Do It Yourself Business Book:

       

      9. Competition

       

      10. Low sales

       

      These figures aren't meant to scare you, but to prepare you for the rocky path ahead. Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, success can be yours if you are patient, willing to work hard, and take all the necessary steps.
        • Re: Reasons for small business failure
          LUCKIEST Guide
          Reasons for small business failure

          You are so right and that is where SCORE can help. SCORE is FREE both in person and online.

          SCORE "Counselors to America's Small Business" is a nonprofit association dedicated
          to educating entrepreneurs and the formation, growth and success of small business nationwide.

          LUCKIEST
          • Re: Reasons for small business failure
            Iwrite Pioneer
            Doesn't all of this come back to poor planning?

            An insightful business plan should cover most, if not all of this.
            • Re: Reasons for small business failure
              Lighthouse24 Ranger

              A recent (July 2008) commissioned study by American Achievement analyzed very small businesses (defined as firms with 0 to 3 employees) that were formed within the last four years, and found that 44 percent had failed -- and cited these causes (mostly the same):
              1. Too much overhead (too much money was being spent on things that didn't directly generate revenue).
              2. Too much debt (more money was borrowed than could be paid back and still keep the business running).
              3. Overspending (too much of the seed money was spent capitalizing the business -- or in some cases on luxuries for the owner -- and not enough was kept to operate the business during the early months while revenues were building up).
              4. Lack of adequate emergency/reserve funds (financial plan and budget was built on a best-case scenario that didn't come to pass).
              5. Poor execution (business wasn't good enough at doing what it did -- may have been incompetent, inexperienced, lousy at customer service, whatever).
              6. Bad location.
              7. Inadequate market analysis (founders didn't really know who/where the business' customers would be).
              8. Failure to adapt to changing market/economic conditions.
              9. Ineffective promotion and advertising.
              10. Not recognizing or underestimating the competition.

              I'm not sure the order of where something ranks on the list makes a lot of difference (since it only takes one or two of those in most cases to do a business in). As Iwrite noted, eight of the ten causes can probably be traced to problems that should have been addressed in a business plan.