Reasons Businesses Fail

Failure Rates.

Data from the SBA indicates two in 10 newbusinesses fail within the first year, and only five in 10 businesses survive five or more years.

Reasons For Failure.

The 10 most common reasons for failure are listed below

  • Lack of experience.

    This can apply to a lack of experiencein a specific business or in running a business in general.

  • Insufficient capital.

    Sufficient capital must be in placeto support a business until cash flow from operations isadequate.

  • Poor location.
  • Poor inventory management.

    Keeping too much inventory uses too much capital unnecessarily, while havingtoo little inventory can lead to shortages and customerdissatisfaction.

  • Over-investment in fixed assets.
  • Poor credit arrangements.

    Lacking access to sufficient, reasonably priced credit.

  • Personal use of business funds.

    Business funds shouldnot be used for personal purposes.

  • Low sales.
  • Competition.

    Not properly assessing competition canpotentially leave a business in a position of needing tocompete in a market where it cannot do so and survive.

  • Unexpected growth.

    Growth without sufficient planning for the consequences can lead a thriving business tofailure.