Research Article: Why do small businesses fail?

            Have you ever driven through your town on a nice relaxing day and thought to yourself, “Hmm where did that store go?” Or plan to take a trip down memory lane and grab breakfast at your favorite childhood diner only to find it’s been replaced with a mom and pop furniture shop. It’s quite frustrating isn’t it? Well imagine how those owners felt going out of business. Before you go on reading this, take a second and try to think of how or why they went out of business. Did you come up with anything? Chances are you can think of a few reasons why and I’m here to tell you those are all exactly right. There is no one specific reason for a business to “go under”, in fact it’s usually a long list of reasons why. Each failed business will have their own specific list of reasons, but it is a list none the less. I plan to take you on a small journey to hopefully give you a better understanding why small businesses fail. Maybe the next time you see one of your favorite stores just “up and left” you’ll have a pretty good understanding as to why.

            Before we can really jump in to the deep end and figure out why these businesses fail, we should take a few minutes to understand why they started in the first place. Just as there is an endless list of reasons why small businesses fail, there is an equal sized list as to why they begin in the first place. Considering this is not the driving topic, I will break this in to two sections and briefly discuss each. The first broad list of reasons to start is: All the right reasons. I say this not to be facetious but mean it sincerely. Some of these reasons may include:

  • Carrying on the family tradition and picking up where they left off.
  • It is a business or plan you are passionate about (Which can be good or bad).
  • The timing, finances, and resources align with your interests.

            On the other hand, and my second section is: All the wrong reasons. Now as I talk about this I do not want people to get things twisted and think that if they fall in this category they will fail. I would prefer people to think of this category as a “warning, caution ahead” sign. Some of these reasons may include:

  • Desperation
  • Having spent years working for someone, they feel stressed and believe the way to fix it is to start their own business.
  • Feel they need immediate income.

            These are all just a few reasons as to why some may decide to start the life of an entrepreneur. Having now seen what may drive people to begin, we can already see where some road bumps could arise in the future.
From “Successful Business Plan Secrets” By Rhonda M. Abrams

            So how to begin. Well in order to start a business, one must first draft a solid business plan. This step right here is a giant hurdle and if one can overcome it then they are on the right path. Now listen to what I just said, IF they make it past that step. Meaning many, if not most people who try to start a business do not make it past this point. So here is the first unmeasurable sum of failed businesses which fell at the idea. There is no way to know how many people have succumb to this part, but it gives us a good idea as to why this is the first of many reasons businesses fail, and that is a poor business plan.

            If the young business makes it past that, the next step is financing. This can be broken up into many different categories but for the sake of time we will mention just a few. Now that we have a plan we need to look for the money to start the plan and this includes investors, personal savings, business loans etc. once they owner has acquired the first allotment of money they can begin the process. However, it is this moment that goes unnoticed. There needs to be a solid plan to pay back whatever is owed in a timely fashion or it will pull the business under.

            Beyond that we can start looking at location. I have personally seen this happen in many of my previous jobs. The location you choose needs to make sense for the business you are running. You may have the best business plan and what seems to be an endless stream of money from loans and investors, but if you are not making a profit that debt will tower and crumble leaving you in the wake of bankruptcy. “When looking for a location, check for traffic and convenience. This will give you an idea of how many potential customers pass through the area and when. Moreover, it will let you know if the area is convenient for your average customer” (Caribbean Business)

            Ok so the business has made it this far. We have a great business plan, our investors and loans are paid or being paid in a timely manner. Our location is good and we’ve made it past the first year or two. Nothing can go wrong now, right? Wrong. I want to take a minute and talk about a few minor things that up front may pose little to no threat but over time will inevitably combust.

Perception:

            Here we look at how the owner’s character plays into the success or failure of the business. There are two very important character traits that need to be present in running a business and that is being a “doer” and being a “dreamer”. It is very important for the owner to be both. However, they cannot be one or the other. A dreamer is the entrepreneur that has aspirations of reaching new heights and has a seemingly endless supply of great ideas. This person can get the business up and running but once it’s moving they lose sight of their path thus far and veer too far to return. The doer on the other hand is the hard worker who will grind until the objective is met. However, there is a level of near sidedness to this where they do not see the future and which direction to go once the objective is done. This phenomenon of being one or the other I believe leads to my next combustible issue and that is failure to adapt. From “Running Your Own Business: Totally Changing Your Perspective Could Make the Difference.” By New Hampshire Business Review

Failure to adapt

            Having started the business is the first of many obstacles one is faced with. As a small business owner, one needs to keep up with our ever changing society and if they do not adapt they will be left in the dust like the last generation of smart phones. We live in a society that is continuously stimulated by change and if something stays stagnant for too long people will inevitably get bored and move on. This is not to say you need to make drastic changes every week, but those who do not reevaluate stimulating features will be left behind. These features may include things like a social media presence, or the level of involvement with the community. Maybe it’s something as simple as a restaurant adding playing cards to the bar and tables. The business needs to constantly look for what excites people and go for it. Furthermore, As the Business grows, so do the owners. It is important to understand that once the business takes off they need to delegate those responsibilities. From “Why Small Businesses Fail.” By Abdelsamad, Moustafa H., and Alexander T. Kindling.

            So here we are. We have seen a few reasons why someone might want to embark on this journey along with a few reasons why it may not last. This list could go on and we could be looking at an informational text that rivals the word count of the epic novel Game of Thrones. However I don’t think I could keep ones attention that long so I will leave you with these parting words. No matter the outcome of the small businesses in your town, they are a driving force for our economy. So before you become discouraged and decide against starting your own business, do your research and make sure it makes sense and that you are willing to stand behind it  

References

Abdelsamad, Moustafa H., and Alexander T. Kindling. “Why Small Businesses Fail.” Advanced        Management Journal (03621863), vol. 43, no. 2, Spring 1978, p. 24. EBSCOhost,    search.ebscohost.com/login.aspx?direct=true&db=buh&AN=4603971&site=ehost-live.

Abrams, Rhonda M. Successful Business Plan Secrets & Strategies: America’s Best-Selling Business Plan Guide! PlanningShop, 2014.

França, Mariana Carla Lima, et al. “Factors Conditioning Failure of Micro and Small Businesses      of the Information Technology and Communication (ICT): Study of Multiple Cases,          Aracaju (SE), Brazil.” Business Management Dynamics, vol. 3, no. 8, Feb. 2014, pp. 40–        50. EBSCOhost,          search.ebscohost.com/login.aspx?direct=true&db=buh&AN=110238183&site=ehost-l           ive.

Goltz, Jay. “Why Small Businesses Fail.” FSB: Fortune Small Business, vol. 19, no. 4, May     2009, p. 17. EBSCOhost,        search.ebscohost.com/login.aspx?direct=true&db=buh&AN=42318320&site=ehost-live.

“Running Your Own Business: Totally Changing Your Perspective Could Make the Difference.”    New Hampshire Business Review, vol. 22, no. 12, June 2000, p. 12. EBSCOhost,    search.ebscohost.com/login.aspx?direct=true&db=bwh&AN=3181744&site=ehost-live.

“Why Do Small Businesses Fail?” Caribbean Business, vol. 34, no. 11, Mar. 2006, p. C6.      EBSCOhost,    search.ebscohost.com/login.aspx?direct=true&db=buh&AN=20303174&site=ehost-live.

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