Why Some Small Businesses Fail

Why Some Small Businesses Fail

It is hard to measure the size of a business. According to The

Department of Trade and Industry (DTI), an SME can be described as a

business that employs between 0-49 people. However a company such as a

Chemical Plant may employ less than 49 people but have a turnover of

£20 million. So according to the number of employees, the DTI would

class it as a small business. However, according to the level of

turnover it could be classed as a large business. The size of the firm

is generally measured by the amount employed1.

The amount of SME’s is forever increasing. There are many reasons for

the increase, such as; improved technology, ability to sub-contract

part of business and public sector being encouraged to become smaller.

There is also Push and Pull factors that help people come to the

decision to be self-employed. “Push factors” include people who are

unemployed or made redundant decide to venture on their own. This may

be simply starting their own window cleaning service. Another “push

factor” is the “Pratt factor” this is when an employee finds himself

working for someone else less talented and wonders ‘why am I working

for you?’ so decides to start up on his own.

The amount of SME’s is forever increasing. There are many reasons for

the increase, such as; improved technology, ability to sub-contract

part of business and public sector being encouraged to become smaller.

There is also Push and Pull factors that help people come to the

decision to be self-employed. “Push factors” include people who are

unemployed or made redundant decide to venture on their own. This may

be simply starting their own window cleaning service. Another “push

factor” is the “Pratt factor” this is when an employee finds himself

working for someone else less talented and wonders ‘why am I working

for you?’ so decides to start up on his own.

“Pull factors” include peoples increasing desires to exploit an

opportunity, turning their hobby into a business, the motivation to

work independently and when people become older they sometimes inherit

money; they sometimes put this money into a business venture they

perhaps previously couldn’t afford.

The failure rate for small businesses is very high. The probability

that your new business will make it past the third year is less than

25%. In other words, over three-...

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...elves in a whole too deep to dig

themselves out of. It was now too late for them to ask for advice and

the shop closed down. My advice to my friend was to learn by his

mistakes and try again.

It is inevitable that small businesses will carry on failing.

Sometimes the reason behind the failure cant be helped. However from

reading this essay you should gather that the majority of the times,

failure could have been prevented. In fact 82% of the time when

businesses fail, the owners really could have done something

differently to stop it from happening.

REFERENCES

1 Business Studies by Dave Hall, Rob Jones, Carlo Raffo. Edited by Ian

Chambers.(1996)

2 www.compulink.co.uk

3 www.bcentral.com

4 The Business Environment (second edition) by Ian Worthington and

Chris Britton. Published 1997 by pitman publishings

JOURNALS USED

¹ Journal of Small Business and Enterprise Development, Vol 9, Issue

1.Learning the hard way: the lessons of owner-managers who have closed

their businesses. By David Stokes and Robert Blackburn.

² Journal of Management Development, Vol 13, Issue 7. Managerial

Competences in Small Firms. By Graham Martin and Harry Staines.