Why Many Small Businesses Fail Essay

748 words - 3 pages

There has been some research into the matter of why small businesses fail. Said and Hughey in (1977) report that the five problem areas that indicates lack of managerial ability in small firms are cash management, personnel, record-keeping, merchandising and tax planning problems.

Dickey in (1994) states that small businesses fail when cash flow is not managed properly. When a business starts or expands, money should be invested back into the business and not retained by the owner as profits.

The article by the Small Business Advisor (1999) indicates that the major reasons why small businesses fail include bad customer relations, bad employee relations, lack of staff training and bad budgeting.

Peacock in (2000) is of the view that the root cause of failure is management inefficiency, inefficient financial management and poor accounting.

Van Aardt, van Aardt and Bezuidenhoud in (2002) have identified eight reasons for the failure of small businesses - poor management skills, poor record-keeping, poor money management, and too little effort to market the business, poor planning, poor pricing practices, poor human resource management and the business owner’s inability to adapt to the changing demands of a business.

Ladzani and van Vuuren in (2002) states that training of employees is not the only solution for small businesses to succeed but issues such as lack of financial resources, lack of access to markets, lack of support services and low literacy levels must also be addressed.

The European Federation of Accountants in (2004) stated the internal causes of business failure to be poor management, deficit in accounting, poor cash flow management, inappropriate sources of finance, dependency on customers or suppliers, impending bad debt, overtrading, poor marketing and research, fraud/collusion. Whereas the external causes of business failure were catastrophic unpredictable events, governmental measures and international developments, environmental protection and other regulatory requirements, bankruptcy of main customer or supplier.

Dewhurst in (1996) is of the view that most small businesses fail because small business owners do not have management training and end up planning poorly or having no plan at all.

Keasey and Watson in (1993) states that the small business management team lack experience and expertise and the business have to rely on a few individuals without the...

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