Why Many Businesses Fail

Wondering what causes businesses to fail?  Are you a small business owner or entrepreneur who wants to improve the likelihood of success for your business?  If so, then read on.

There are many reasons that small businesses fail.  If you are a small business owner or entrepreneur, you may have encountered or at least contemplated a few of the common pitfalls.  While “running out of money” has ultimately been the downfall of scores of businesses, there are usually several contributing factors that lead to that end (many of which are avoidable).  Web articles from Forbes, CNBC.com, and SBA.gov, and other business support sites all point to lists of “Top Reasons” businesses fail.  Below are 3 of the most common reasons.

Poor Money Management

This could be a result of the personal use of business funds (which is a big “no-no”), an over investment in fixed assets, poor credit management, or not maintaining sufficient capital. Managing your company’s cash flow is essential and if your business is able to establish a steady revenue stream, keep in mind that it may quickly dry up if proper money management techniques are not followed.  The U.S. Small Business Administration and the Federal Deposit Insurance Corporation have worked together to create and offer a free 10 module, instructor-led program titled “Money Smart for Small Business” that you may find useful.  More information about this program can be found here https://www.fdic.gov/consumers/consumer/moneysmart/business.html.


Marketing is a vital component in connecting to your customer base.   Having a great product or service is only valuable if your prospective customers know about it and can access it.  By not developing a good pricing strategy, underestimating the competition, or failing to differentiate your product or service from others in your area you can miss out on potential revenue.  Free one-on-one counseling and free or low-cost workshops are available through the Small Business Development Center.   In regard to marketing assistance, the SBDC offers “Market Feasibility Research” and “Marketing Strategy Development”.    More information can be found here http://www.azsbdc.net/what-we-do/.

Lack of Leadership

Problems with leadership can be detrimental to an otherwise successful business.  Partnerships gone awry, poor management structures, disgruntled employees, and a general lack of leadership skills can “sink your ship”.  Many successful leaders have good communication skills, are able to relate to their internal and external stakeholders, are well-versed in conflict management, and are mindful of their own strengths and weaknesses.

If you do not yet excel in each of these areas, don’t fret!  A successful business is built over time, and there are several resources available to help you hone your leadership, money management, and marketing skills.  Workshops, classes, and mentoring opportunities are commonly available through local organizations in your community, and could be a good way to gain or further develop the skills that will aid you in avoiding these all too common pitfalls.  Make sure to check out our upcoming Idea+Space at the Joel Valdez Library for events and programming related to business start-up and growth.