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Why Small Businesses Fail

Success in business is never automatic.

It isn't strictly based on luck -- although a little luck never hurts.

Success in business depends primarily on the owner's foresight and organization.

Even then there are no guarantees.

Underestimating the difficulty and what is really required to start a business is one of the biggest obstacles entrepreneurs face.

However, success is possible if you are patient, willing to work hard, take all the necessary steps and are teachable or coachable.

According to the US Small Business Administration, over 50% of all small businesses fail in the first year and 95% fail within the first five years.

On the positive side, 80% of businesses can succeed if the business owner receives training.

In his book 'Small Business Management', Michael Ames gives the following reasons for small business failure:

1. Lack of experience
2. Insufficient capital
3. Poor location
4. Poor inventory management
5. Over-investment in fixed assets
6. Poor credit arrangements
7. Personal use of business funds
8. Unexpected growth

Gustav Berle adds two more reasons businesses fail in 'The Do It Yourself Business Books':

1. Competition
2. Low sales

On the Upside

It true there are many risks to starting your own business. But for the right person, the advantages of business ownership far outweigh the risks:

1. You will be your own boss
2. Hard work and long hours directly benefit you, rather than increasing profits for someone else
3. Earnings and growth potential are far greater
4. A new venture is as exciting as it is risky
5. Running a business provides endless challenges and opportunities for learning

Other factors needed to succeed in business

1. Be honest in all your business and personal financial dealings -- be a person of honesty, integrity and good will. Always maintain the highest standards in both personal behavior and professional ethics. Be a role model.

2. Place your family first -- Small businesses require a massive amount of time and energy. Workweeks of 80+ hours are not uncommon for the new business owner. Besides, you are often giving your business your heart/mind energy 24/7. Temporary periods of imbalance are common -- but if you find your business requires too much time away from your family, you may want to reconsider the business, or self-employment altogether.

3. Treat your suppliers and (that includes your investors) with respect. They are the lifeblood of your company.

4. Be community minded. Get involved in community affairs, support local activities and become active in the local Chamber of Commerce or other organizations.

5. Be a good boss! I can't stress this point enough. Treat employees with respect and friendliness. Find ways to help others. Pay a fair wage. Be considerate of special needs your employees may have.