Some statistical research on the reasons why small businesses fail provides interesting results.

32.1% of small businesses fail due to poor management of financial activities. 

Not been properly funded or failing to keep a tight reign on debtors and creditors are examples of such issues.  It there’s one area that’s a weak link for most businesses, this is it!

The vast majority of business owners and managers do not have a great deal of formal financial management skills or training.  Let’s face it, not everyone is an accountant!  And often because of this, finances are not a favorite.

Further, most business owners prefer to complete the work the business does instead of fussing over the details.  As such, financial control is one of those detailed areas they often avoid.

In this instance, proper controls may not be in place, proper reports telling the owners literally how much profit (or loss) they made at the end of the day.  Or a business could experience profitable years on paper and have solid debtors; however, due to poor control of those debtors, the business remains cash poor on a day-to-day basis, making payment of creditors a juggling act.  This places the business, large or small, under financial strain.

These sorts of controls and reporting are crucial for the management of monies in and out of the business.  Without it, failure is a serious possibility.

14.6% of small businesses fail due to a lack of management competence or experience.

Business owners are often very good at doing the technical work of their business.  In this instance, a lack of experience in actually managing a business can be its downfall – being good at what a business does not not necessarily guarantee that the person will be good at managing the business. 

12.4% of small businesses fail due to inflation and economic conditions.

These are conditions affected largely bu internal government controls on currency and interest rates and by other world-wide financial mechanisms.  These conditions can also be altered by the effects of weather, or natural disasters on an area. even pandemics.  Obviously, these factors are outside your control as a business owner.

12.3% of small businesses fail due to poor books and records.

It’s staggering, don’t you think, that the seemingly small task, although a detailed one at that, of keeping good books and records of sales, expenses, etc., can literally bring about the failure of a business!  You see, keeping detailed financial figures and records can be an issue some business owners or managers avoid.  This is very dangerous too.

Operating a business without good records means you never know how much money you have in the bank, where that came from, or who and what you owe, and so on. You have to know where you stand financially at all times.  Without that, keeping your customers happy will be difficult, let alone making sure you’re profitable.

(Note: The statics mentioned in this article defines ‘small business’ as those businesses with less than 100 employees).

If you’re having problems in an area of your business, you usually CAN do something about it.  With the right help, you can get each of the above factors in order.