Do you know a small business that has failed?
According to a Commonwealth Bank Of Australia survey 80% of new small businesses fail in the first five years. Why is this so?
In his book, Small Business Management, Michael Ames gives the top reasons small businesses fail (in no particular order):
- Lack of business management experience
- Insufficient capital (money)
- Too much debt in relation to cash-flow
- Poor sales
- Poor location
- Poor inventory management
- Over-investment in fixed assets
- Poor credit arrangements
- Personal use of business funds
- Unexpected growth (sounds like a good problem to have, but too much growth can lead to lower quality product or service, more returns, mistakes, hiring of unsuitable staff, overspending on stock, cash-flow problems, etc)
My thoughts on this that out of the list above ‘Poor Sales’ should be the the top of the list, though I have personally seen business fail for the other reasons too. I would re-arrange and group these reasons for business failure as such :
1) Poor sales. Including poor location.
2) Lack of management experience. Including insufficient capital, too much debt, poor inventory management, over investing in fixed assets, poor credit arrangements, personal use of business funds and unexpected growth. Experience is key if one is to ever master organizational leadership and grow a business.
Both of these two main areas of business failure can be addressed by hiring experts and for the business owner to invest in their own continual business and management training.