Why Many Small Businesses Fail

There has been some research into the matter of why small businesses fail. Said and Hughey in (1977) report that the five problem areas that indicate lack of managerial ability in small firms are cash management, personnel, record-keeping, merchandising and tax planning problems.

Dickey in (1994) states that small businesses fail when cash flow is not managed properly. When a business starts or expands, money should be invested back into the business and not retained by the owner as profits.

The article by the Small Business Advisor (1999) indicates that the major reasons why small businesses fail include bad customer relations, bad employee relations, lack of staff training and bad budgeting.

Peacock in (2000) is of the view that the root cause of failure is management inefficiency, inefficient financial management and poor accounting.

Van Aardt, van Aardt and Bezuidenhoud in (2002) have identified eight reasons for the failure of small businesses - poor management skills, poor record-keeping, poor money management, and too little effort to market the business, poor planning, poor pricing practices, poor human resource management and the business owner’s inability to adapt to the changing demands of a business.

Ladzani and van Vuuren in (2002) states that training of employees is not the only solution for small businesses to succeed but issues such as lack of financial resources, lack of access to markets, lack of support services and low literacy levels must also be addressed.

The European Federation of Accountants in (2004) stated the internal causes of business failure to be poor management, defici...

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...990) is of the view that firms that do not have good inventory control will have higher costs and will affect the cash flow of the firm. Also, poor inventory control encourages theft by employees.

Longenecker et al (2003) states that maintaining inventory at an optimum level will save money and contribute to operating profits.

According to Jones and Tilley (2003), poor financial management is a serious hurdle when starting a business. Lack of funds and investment capital are the major challenges that have accounted for the high rates of failure among SMEs.

Resnik (1988) reports that businesses fail each year because of fatal crime losses mostly because of theft that can befall a business from any source, be it from a professional criminal, a customer, a supplier, or an employee.