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Reasons why small businesses fail and how to prevent them

Reasons why small businesses fail and how to prevent them

The younger a business is, the greater it is to run out of business. According to U. S Small Business Administration, roughly 20% of new businesses survive past their first year of operation. It is quite sad to see one’s hard work be in vain; therefore, it is important to identify the reasons why small business fail and sort ways to prevent them.

Running out of Funds

One thing quite impossible is getting millions from your business within the first few months of operations. So, a plan has to be mapped out in order to keep cash flowing to run the business. The problem may not even be underfunding but the inability to set priorities right to know what and what to spend on thereby running out of funds.

Another cause is inaccurate financial management. It is not surprising that some business owners do not have a full knowledge of accounting which leads to mismanagement of funds.

The solution is not far-fetched. Accounteer is a great tool you can use to manage the finances of your business. It solves the problem of inaccurate financial accounts as it helps business owners manage their accounts and be in control of their business finances even without financial knowledge.

Starting for the wrong reasons

More often than not, a business venture is started for the wrong reasons. Unwillingness to learn and work for someone is the commonest reason as well as being all about the money. The question is if you do not want to work for anyone, why should someone work for you? Working for someone has its own advantages as you learn, gain more experience, and develop leadership skills. So, that when you stand on your own, you already have vast knowledge about the business, and you can learn from your master’s mistakes.

Rather, invest your resources in a business you are passionate about; do what you love and money will flow in afterwards. Just like the saying goes: choose a job (business) you love and you will never have to work a day.

Lack of proper planning

A business that will thrive is determined by proper planning, right before the start of operations. A lot of time must go into planning than building the organization itself. There must be business plans to guide the business, so you just don’t manage the business blindly; feasibility study of your plans, short and long-term goals must be in place; and marketing strategies, be it an online or offline business.

Research must be made on how profitable the market is, taking a lot of time to study the market and your competitors; ask yourself what they are not doing that you can do to give an edge. Also, are there any additional skills you could acquire to aid move your business forward? What would be the state of your business in the next 5 years?


Setting up your business in an inappropriate location is already a sign that you will soon run out of business. Rather, get a well accessible location for customers. Look out for competitors in the area, as you do not want to be in stiff competition with too many other businesses of the same kind in the same locale. That isn’t good for business.

Poor management/leadership

This is one of the swift killers of a business in no time. As an entrepreneur, you need to exhibit impeccable leadership qualities in every situation, this includes the ability to make good decisions in crucial moments.

A person cannot be an island of knowledge; this is where consultations come in. A good leader must be able to seek the opinions of his subordinates and make use of the best ones.

You cannot have strengths in all aspects, so improve on those areas you are weak at by acquiring skills, talking to your mentor if you have one, and if you don’t, get one. The role of a mentor in the growth of your business is limitless.

Your employees are looking up to you to lead them right, so don’t let them down.


So, your business is doing well, even more than expected, you already made a name for yourself in your locale and you are just like; “why don’t I just expand this business to another location?” It may actually be an awesome idea but need to know the answers to certain questions like: “what is your business’ value proposition?”, “how do members of your management team feel about the expansion?”, “are they ready?”

If you seem positive with your answers, proper planning and research must be done regarding the new location. Figure out the model works in this new place. Know the competitors in the area and work on your marketing strategies. Learn on how to shuffle back and forth to both places so you don’t get confused and everything becomes chaotic.


Without a high level of motivation, a business owner can be frustrated into stopping operations in their business. Maintaining a high spirit, positive energy, drive and enthusiasm in hard times will help you scale through. Let your passion drive you, and that’s why your business has to be your passion.

Lack of Differentiation

Tola is a makeup artist that gives all new customers makeovers at reduced prices, does free birthday makeovers, sells makeup products at discounted prices to referrals. There is another makeup artist just around the corner, that does none of these things.

The lesson of the story is: be different from your competitors, put an icing on your cake while others leave theirs bare. I for one, will go to Tola for my makeover on my birthday as it is free and I'd refer my friends to get my makeup products at discounted prices, now that makeup is gold. I mean, who doesn’t like good things? You are not the only one in the business, so you might as well try to think outside the box before others move way ahead of you.

If you know more reasons why small businesses fail, why not send us a direct message on Twitter. Our twitter handle is @Accounteer. We look forward to receiving your comments. Let’s get the conversation started.