WHAT ARE THE CAUSES OF SMALL BUSINESS FAILURE

An organisation dies when it is starved of funds. Therefore, business   failure arises where an enterprise stops its activities because it cannot generate profits or adequate funds to cover its costs. This paper will discuss the reasons small businesses fail.

Laissez-faire Corporate Governance- Where the leaders are blind the followers fall into problems. Schaefer states that business becomes bankrupt when it is not given sufficient attention. Bad management kills companies. Most of the small companies are manned by incompetent and inexperienced people who lack the vision to move their companies forward. Besides, they do not follow the internationally recognised best practices necessary for running organisations profitably. Some managers run their companies like private, if not family businesses.

Location of Business Premises- One of the common reasons responsible for business failure is the position of business premises. When a business premises is located in a place where it is not accessible to potential customers, and the ancillary to enhance operation is lacking, such an outfit is bound to fail. For a business to be successful it must be cited in area where there are good road networks, electricity, ports and available market.

Maintenance of Buffer Capital-   Small businesses fail because they do not plan for the future. Similarly, Schaefer argues that inadequate capital is the undoing of many businesses. A company should maintain a reserve capital to act as a buffer when there is economic downturn. It is worthy of note that small businesses lack sufficient funds to run their affairs, let alone keep a reserve capital. The inability of small business to maintain a buffer capital affects its operations especially, when there are low profits or poor revenue.

Increase in Debtors- The operations of small business do not last when they start to accumulate large debtors .As goods and services are transacted on credit and debtors hold on to the funds of a company to the extent the debts become irrecoverable, then failure creeps in. Cash flow into a company increases its liquidity; however, companies should not allow debtors to confiscate their running capital.

Overtrading- This is involving in many activities which a company resource cannot support. In similar vein, Mason corroborates that, `It’s hard to believe that too much business can destroy you, but the textbooks are full of case studies.` Where a company over expands and diversifies, it becomes difficult for such a firm to finance and coordinate its operations. A small business which acquires what it cannot manage is likely to become bankrupt.

Advertising-  Advertising helps businesses to market and promote its products and services. Evidences exist abundantly to believe that small businesses lack the funds to create awareness for its goods and services. Firms that do not advertise their wares and services are at the mercy of their competitors.

Innovation- Things change with time. For a business to continue to exist, it must not overlook changes in style and but must be ready to employ the latest technology that will facilitate mass production and quality goods. Small enterprises do not have the resources to embark on research to discover the latest techniques of production that will reduce cost and above all give them an edge over their competitors.

In conclusion, Small businesses will endure if they are precautious, innovative and are ready to employ visionary and qualified managers.

References:

Patricia,Schaefer. “Why Small Businesses Fall: 7 Top Reasons Why Start-ups Fail and How to Avoid Them”. Attard Communications Inc, 2011. Web. 30 July, 2015.

Moya, k . Mason.”`What Causes small Business to Fai”. Web. 30 July, 2015.