Business Failures – Why do they happen?

Poor management is the largest single cause of business failure.

Year after year, the lack of managerial experience and aptitude has accounted for more than 90 percent of all failures.

Many factors may adversely affect individual firms over which owners have little control. In such cases, the astute manager can often soften the blow or, sometimes, change adversity into an asset. Examples of factors over which the owner has little control are overall poor business conditions, relocation of highways, sudden style changes, the replacement of existing products by new ones, and local labor situations. While these factors may cause some businesses to close, they may represent opportunities for others. A local market place may decline in importance at the same time new shopping centers are developing. Sudden changes in style or the replacement of existing products may bring trouble to certain businesses but open doors for new ones. Adverse employment situations in some areas may be offset by favorable situations in others. Ingenuity in taking advantage of changing consumer desires and technological improvements will always be rewarded.

In the final analysis, it is up to you. Will your management be competent? Will you be able to judge, and then satisfy, your customers' wants? Can you do this accurately and quickly enough to more than compensate for risks due to factors beyond your control? Such accomplishment requires expert management - if you can’t supply, it consult with and hire people who can!

Every year, thousands of businesses fail of every size and variety. But while business failures know no size boundaries, the majority are classified as small businesses.

According to data from the Administrative Office of the U.S. Courts, more than 98 percent of businesses that have filed for bankruptcy since 1980 have been small.

Surveys show that the primary reasons for business failure lie in the following areas:
Inability of management to reach decisions and act on them.
Failure to keep pace with management system.
Reluctance/Inability to seek professional assistance.
Loss of impetus in sales.
Bad personnel relations.
Loss of key personnel.
Lack of staff training.
Inability to cope adequately with competition.
Insufficient working capital or incorrect gearing of capital borrowings.
Growth without adequate capitalization.
Bad budgeting.
Ignoring data on the business's financial position.
Inadequate financial records.
Inefficient control over costs and quality of product.
Under-pricing of goods sold.
Bad customer relations.
Failure to promote and maintain a favorable public image.
Bad relations with suppliers.
Illness of key personnel.
Failure to minimize taxation through tax planning.
Inadequate insurance.
Competition disregarded due to complacency.
Failure to anticipate market trends.
Loose control of liquid assets.
Extending too much credit and bad credit control.
Over-borrowing or using too much credit.
Bad control over receivables.
Loss of control through creditors' demands.