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The Real Reasons Why Small Businesses Fail

May 5, 2009 by Mark Fregnan

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.

About the author. I’m Mark Fregnan, founder of Kinetic Media & Marketing, an Australian consulting business that focuses entirely making our clients MORE PROFIT WITH LESS EFFORT. We understand the financial and time pressures felt by small business owners especially in the new world economy. We rely on our proven marketing and business strategies along with smart systems to produce and maintain a healthy increase in sales and profit for our business clients.

Filed Under: Achieving Business Success Tagged With: business, sales, strategies

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