Why do most Small Businesses fail?

“Most small businesses failed because the owner was under-skilled, not under-capitalized”

– Robert Kiyosaki

Business failure isn’t something you think about when you start a business. Only about one-third of the small businesses that start survive for ten years or more! The statistics seem to be grim. Although the reasons can be numerous, the most prominent ones being lack of planning, poor management of finance & operations and not scaling up efficiently. Let’s look at them one by one.

1. Lack of proper planning

The idea of entrepreneurship is so exciting that most entrepreneurs completely miss out on the nuances of running a business. They fail to budget workforce needs, working capital, long-term expenses, maintaining proper accounts, strategising, analysis, etc. Everything is an on-the-go-as-we-need basis. Lack of planning can be an understatement, sometimes there is zero planning.

2. Poor management 

Most business owners are people who have worked in the same line of business previously as an employee. They make the fatal mistake of assuming that “knowing the line of business” is equal to “knowing ‘how to run’ that line of business”. That is where the downfall starts. Accounts, cashflows, finance, taxation, other compliances etc. all take a tumble.

3. Inefficient scaling up

Either the scaling up happens too soon, without the right research and analysis or it just doesn’t happen. Most businesses grow turnover-wise but forget to grow workforce-wise – that’s where the inefficient scaling up phase starts. This leads to automatic loss of business and a stagnant growth. There is no business system to go forward with.