Small Business Failure

Why Small Businesses Fail

Success in business is never automatic. It isn't strictly based on luck - although a little never hurts. It depends primarily on the owner's foresight and organization. Even then, of course, there are no guarantees.

Starting a small business is always risky, and the chance of success is slim. According to the U.S. Small Business Administration,

Why Small Businesses Fail

These figures aren't meant to scare you, but to prepare you for the rocky path ahead.

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

  • Lack of experience
  • Insufficient capital (money)
  • Poor location
  • Poor inventory management
  • Over-investment in fixed assets
  • Poor credit arrangements
  • Personal use of business funds
  • Unexpected growth

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

  • Competition
  • Low sales

More Reasons Why Small Businesses Fail

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.

On the Upside

It's true that there are many reasons not to start your own business. But for the right person, the advantages of business ownership far outweigh the risks.

  • You will be your own boss.
  • Hard work and long hours directly benefit you, rather than increasing profits for someone else.
  • Earning and growth potential are far greater.
  • A new venture is as exciting as it is risky.
  • Running a business provides endless challenge and opportunities for learning.

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Additional Resources for Entrepreneurs

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Conversation Board

Why do you think small businesses often fail? Do you have anything to say about small business failure rates? We welcome all comments, tips, advice and suggestions.

  • turn-n-burn posted on 8/17/2008
    I think there is one more thing that could be added in certain situations as to why some small businesses fail. As this may be the case with me. That would be overcomming a reputation in a small town.
  • Valerie posted on 7/19/2009
    I am confident in starting a small business, but I agree with the above comment. This is a small town with known names and it's difficult to be welcomed with open arms if you're not a popular family or company.... I won't let it stop me though, it's time to have a fresh, happy and successful beginning! Good luck to you if you are going to start your own business, the American Dream.
  • Infinite Style posted on 8/3/2009
    Infinite Style
    One note I can offer when throwing your hat in the ring of business ownership is, you have to first be honest with yourself. Are you an employer or employee? A business owner has to be a real go getter! You have to have the self motivation and hustle to keep up with changing times. There's always someone out there that would love to take your place or niche. Once you establish these truths about yourself, then you can decide if owning a business is the thing for you. GOOD LUCK!!

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