Small business failure

There are many reasons that may lead to small business failure such as the lack of planning, learn about the other reasons .

Small business failure
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Last update 25-12-2022
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Small enterprises are the basis of most of the economy. It contributes to creating job opportunities, introducing new products to the market, enhancing individuals' income, in addition to being responsible for many positive aspects in much of the economy. But despite this vital economic role, studies indicate that about 50% of new projects fail to survive the first 5 years, while only a third of the tenth anniversary is celebrated. This is why the idea of ​​starting a small business has become an intimidating proposition for many.

The reasons why small businesses fail are many and varied

Bad management

  • When things go badly for any small business, know that the reason is most likely the manager, who is usually himself the owner.
  • Some people immediately enthusiastic about the idea of ​​independence and rush to establish small enterprises without assessing their ability to manage. Some people already possess this method, while others lack it and need to make an effort to acquire it.
  • A person who has communication skills and at the same time respects and appreciates his employees, he can lead the project to success, but if he does not possess the instinct of commerce and the market sense, he will not be able to survive the project.
  • As an employer, if you do not have the necessary expertise and managerial skills to manage the project, you should surround yourself with those with experience.
  • Seeing the help of experts.


Insufficient capital

  • This is considered one of the most common reasons for the failure of small projects.
  • Many small business owners reduce their estimates of the expected costs of running the business, and this error leads to the project owner losing his money, and may even push him to borrow sometimes. 
  • As a project owner, you must spend a lot of time and effort planning and forecasting the projected costs of the project. The economy is volatile and goes through different cycles, and it is very possible that unexpected expenses or problems will suddenly appear before the project. So you need at least 20% of the project capital to be kept aside in anticipation of any event.



Location is important to many small businesses. But its importance depends on the type of activity and the nature of the target customers. A bad website can lead to business failure, and a good website can give the project an additional advantage over competitors.

There are some factors that you can consider while searching for a location:

1- Traffic, car accessibility, and street lighting.

2- The location of competitors.

3- The condition and safety of the building.

4- The nature of the geographical environment.

5- Availability of security. o If the business includes distribution activities, then the issue of location becomes a vital matter, but if it is focused on the Internet, the site may not play this dominant role.


Loss of personality of the project

At first, small business owners may be forced to work 18 hours a day, and this leads to a blurring of the line between the project and their personal lives, so some of them begin to view project revenues as personal cash reserves.

Failure to separate the financial personality of the project and the financial liability of its owner often leads to dire consequences, and the matter may reach liquidation of the project after the owner has exhausted the revenues on his personal expenses.


Absence of planning

  • It is important for small projects to realize the nature of what awaits them on the road they intend to take, so that the management can plan and implement the ideas that will allow the project to flourish and overcome potential obstacles.
  • Many projects have failed due to the absence of planning, and therefore it is very important that a business plan be drawn up for the project before it is on the ground, and the plan must clarify the main aspects of the market and the nature of competition. A carefully written business plan forces the company to think about the future and the challenges it will face, and it pushes it to consider the suitability of its current plans for marketing and management and the efficiency of financial resources for the future nature of the market and competitors.
  • Lack of planning also leads to the company drowning in preoccupation with its present and obscures its future vision.

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