One topic of perennial interest to small business managers is why some small businesses go under. The knowledge of why many small businesses have failed can be helpful in seeing that it will not happen to your investment.

Dun and Bradstreet periodically publishes the reasons for business failures including all of the largest failures. The reasons for large business failures are not different from those of small concerns, except for the scope. According to Associated Business Brokers of Atlanta, smaller companies fail primarily due to the following causes:

1. Not preparing and following a formal Business Plan.

Many business owners think that dedication and hard work will pull them through. A global look at the business, frequently updated, is essential to assure success. If the skills are not present to prepare one, no other allocation would be as effective as obtaining professional assistance.

2. Inadequate attention to the business.

Thinking a manager can concentrate on just one facet of the business, such as finance or production; failing to realize that all areas of operation are important to success.

3. Lack of planning.

Opening a company in helter-skelter fashion; for example, opening in a depressed area because the rent is low, or as the first retail tenant in an unoccupied mall.

4. Failure to deal carefully with suppliers.

Accepting inferior merchandise or poor service and giving little thought to developing secondary sources. It is essential to be constantly seeking the best quality and service at the lowest price - from reliable suppliers.

5. Not knowing the financial condition of the business.

Maintaining poor books and records - which results in having no conception of profits, costs, margins, sales or customer ratios. The business owner is then unable to make intelligent decisions because of the lack of this information.

6. Insufficient understanding of the competition.

Not knowing one’s strengths and weaknesses in relation to those of business rivals, thus forfeiting the opportunity to gain a stronger position.

7. Poor people skills.

Failing to develop an orientation system for new employees or to follow through on personnel development to foster a team spirit. Conversely, many owners are unable to swiftly discharge poor performers without fear or favor.

8. Lack of perspective.

Becoming too immersed in details and losing sight of how the overall operation is progressing.

9. Lack of attention to sales.

Ignoring what should be the main thrust of any business if it is to be successful. If sales are not there, then revenue must be lagging, and financial crisis is looming.

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