What are the top 12 reasons for small to medium sized businesses failing?

You already will have heard the statistics on business failure.  The statistics vary, depending which source you are reading from.  For simplicity, let’s just trust the data provided by Dunn & Bradstreet – who are business credit providers and who do “research” to keep their PR machines churning along.

According to D&B “Businesses with fewer than 20 employees have only a 37% chance of surviving 4 years (of business)

and only a 9% chance of surviving 10 years.”

 

“Of these failed businesses, only 10% of them close involuntarily due to bankruptcy and the remaining 90% close because the business was not successful, did not provide the level of income desired or was too much work for their efforts.”

Other general statistics that get thrown around include this gem [also from Dunn&B]:

“Nine out of ten business failures in the United States are caused by a lack of general business management skills and planning.”

D&B divide the failing groups in to two sets, labelled “catastrophic failure and general lack of success. Catastrophic failures are the primary result of economic factors. According to D&B, over 75% of those businesses that cite economic factors as a reason for failure, indicate that a lack of profits is the primary reason. Catastrophic failures also result from the death of a partner, fire, fraud, burglary and “acts of God”.

D&B say that statistically 88.7% of all business failures are due to management mistakes.

Here is a summary list of the 12 leading management mistakes that lead to business failures:

TOP 12 REASONS [From D&B]

1. Going into business for the wrong reasons

2.  Advice from family and friends

3.  Being in the wrong place at the wrong time

4.  Entrepreneur gets worn-out and/or underestimated the time requirements

5.  Family pressure on time and money commitments

6.  Pride

7.  Lack of market awareness

8.  The entrepreneur falls in love with the product/business

9.  Lack of financial responsibility and awareness

10.  Lack of a clear focus

11.  Too much money

12.  Optimistic/Realistic/Pessimistic

A Summary Table – Causes of Business Failure

1)   Incompetence.  46% of failures.  [Includes emotional pricing, living too high for the business, nonpayment of taxes, no knowledge of pricing, lack of planning, no knowledge of financing, no experience in

record-keeping or lack of understanding.]

2) Unbalanced Experience. 30% of failures.  [Includes poor credit granting

or lack of managerial practices, experience excessive bad debts, expansion too rapid,  inadequate borrowing practices.]

4) Lack of Experience. 11% of failures.  [Includes carry inadequate inventory, line of goods or services, no knowledge of suppliers, wasted advertising budget.]

5) Neglect, fraud, disaster. 1% of failures.

[Source: “Business Failures Rise in Nearly Every Industry Sector in First Half of 1997,” Dun & Bradstreet – News, Views and Trends.]

Business Success Is Not

Rocket Science…

You have just read the appalling stats on what happens in the majority of businesses.

There is another – more hopeful – statistic from D&B – a study showed that:

“over 90% of small businesses were still in business after five years IF they had the help of a Small Business Development Center (SBDC) or other expert assistance.”  [The SBDC is the US version of bodies like Dept of State Development here in QLD.]

Or Just Read One Decent Book!

There are other stats that say that if business owners attend even one business education seminar, or course – or even read some decent business books – that chance of survival massively improve.

Lack of Skills & Planning Equals Lack of Profits

Another clear point is of all the business failures – 75% were put down to lack of profits as the primary reason by the business owners.

The researchers then said that 90% of failures were due to lack of management skills and planning.

So which comes first?  Lack of  skills and planning or lack of profits?   Does this remind you of the saying that “failing to plan is really planning to fail.”

About the Author Business Coach James Hooper

Townsville based James Hooper: The term "rainmaker" is becoming regularly used in business context as someone whose role is to 'make rain' or 'create growth' in your business. In some senses the term 'business coach' is limiting as it is primarily about optimizing the effectiveness of the owner/operator. Sometimes the leverage is in the business systems rather than in the operator - and focus on that produces the preferred outcomes. Business is a game, a puzzle, a tool to get you what you want in life. Call me for a second opinion (other than yours) on how to make your business give you what you want it to.

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Business Coaching Tips Townsville | Seminar.com.au Townsville says 09/03/2015

[…] fail in your business just because you did not know some fact or acquire some skill.   http://seminar.com.au/what-are-the-top-12-reasons-for-small-to-medium-sized-businesses-failing/    Just knowing what kills business might not only save your business – it may also give […]

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