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5 Reasons Why Most Small Businesses Fail

5 Reasons Why Most Small Businesses Fail

5 Reasons Why Most Small Businesses Fail

According to research conducted by the U.S Bureau of Labor Statistics, half of the new businesses fail during the first five years. Starting a business is not easy, there are countless statistics on the internet about the survival rate of starting companies. These statistics sometimes are scary, and you should not be scared because it’s only a sample of small businesses that were involved in these statistics studies. 

There is always some truth in business statistics but don’t let it kill your entrepreneurial dream. Instead, reading this article will help you to understand the major reasons why small business usually fails. You can also decide to buy Twitter likes for your business and boost engagement with your target market. However, without paying close attention to these common mistakes, that would be fruitless.

  1. Poor Management and Leadership Failure 

Poor management is always the main reason for most businesses, and it can cause emerging of other big problems. Most entrepreneurs are not aware of their responsibility when opening up a business, running a small business from the start is a huge responsibility. In fact, all functioning roles are your responsibility any small mistake will lead to a failure.

Poor management and leadership failure are evident in many forms, such as lack of experience in making management decisions, supervising staff, and lack of vision to lead your business. Leading small businesses requires leaders without any mistakes who are not reluctant to take charge or solve any issues arising. A business will always slip towards failure if the leading team lacks leadership qualifications.  

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  1. Fair to Understand Customer Behavior

Customers are always right when they recommend doing this and that, even in a tiny business. Customers always demand quality products and services, and they complain loudly if you fail to deliver. You find a lot of complaints on social media platforms and any other tools you use for communication. There are many digital platforms where customers can share their thoughts and opinions, so it is easy for owners to focus and interact with them to understand them. This will prevent failure.

 Understanding your customers will help you to know what they need and their feedback. Customers may be interested in your product if you change a certain feature or alter a procedure on the services you are providing. Most small businesses fail because they don’t keep their eyes on the interest of their existing and potential customers. Survey your customers through market research and create a good customer relationship to avoid failure. 

  1. No Business Plan or Poor Planning 

Most brand-new small business owners think a good business idea on paper may rarely do well in reality. This means as a new business owner, you should not ignore the business plan instead, you need to do extra research and come up with good planning. A business plan defines your goals and value proposition, it also helps to differentiate your business from competitors.

Most small businesses start operating without a business plan because the owner may fail to understand the importance. The business plan includes a description of the business, future and current employee needs, opportunities and threats within the market, needed capital, and market and competitor analysis. As the owner, if you fail to address such an issue, then your business is heading to fail.

  1. Lack of Finance and Poor Finance Management 

Finance issues are a primary reason why the smallest business fails, some lack funding, and others manage funds badly. Most small business owners are totally not aware of how much money they need to keep the operation running daily. In such cases, important business activities such as funding payroll, paying expenses such as rent, and ensuring suppliers are paid on time may end up delaying.

Some small business owners miss the mark on pricing products and services when it comes to prices. To overcome competition in the highly competitive environment, some companies lower the price of products or services to entice new customers. This strategy is only successful in a few cases where the owner knows how to manage funds well. But if a business experiences poor finance management, it will fail because the cost of production will outweigh the profit generated.


Operating a successful business does not depend on good luck. Without a good business plan, working strategic plan, and good financial management, your business will fail at the beginning. The tips above should give you a solid understanding of how entrepreneurs make mistakes and what kind of mistake leads to small business failure.

It is not simple to avoid all mistakes that will lead to business failures, but you should be aware of the reason for these problems and how to handle and solve them faster.

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5 Reasons Why Most Small Businesses Fail