Research had it that by the fifth year in business, about 50% of all small businesses shut down and most of the common reasons cited for this failure include lack of experience, poor management, insufficient capital, personal use of funds, lack of cash flow, unexpected growth, to mention a few.
Let’s elaborate on more reasons why most MSMEs shut down in little or no time
A poor or in-existent business plan is the reason for many business failures. An effective business plan defines the goals of the business owner and formulates a road map to reach those goals. The business plan should identify its market, sales projections, customer needs, special niches and price range. It contains a marketing strategy, budget, management plan and short range and long range goals. The business plan does not just focus on the proposed business, but on the business’ potential competition as well.
Lack of Capital
A business that runs out of working capital before bringing in sufficient funds to sustain its expenses is often a result of poor budgeting or unrealistic forecasts. When setting up the initial budget, the business owner might underestimate expenses, such as material costs, labor or utilities. The entrepreneur might assume the business will begin paying for itself long before it actually does, resulting in vanishing capital and mounting bills with no way to pay them. A certain University guide listed the lack of capitalization as one of the top four reasons a business fails. The other three include lack of business skills, failure to understand the market and lack of advertising or publicity.
An entrepreneur who is a gifted chef might fail as a restaurateur if he has no management skills. Poor management is a common cause for business failure. There is more to running a restaurant than being a great cook, just as there is more to running a successful photo studio than being a talented photographer. Managing the business involves organizational skills, coordinating staff, paying great attention to detail and dealing with mundane yet necessary paperwork.
Even with a stable infrastructure and capable employees, sustaining a business when its owner falls ill is not always possible. Businesses commonly close due to health reasons. Even a successful and thriving business might close its doors if the owner faces significant health issues or if the owner has reached an advanced age and no longer has the energy or motivation to continue.
The entrepreneur might have an excellent business plan, ample capital, great management skills and be in perfect health, yet an unforeseen, totally unexpected event might close his business. A tornado might drop down in his town, demolishing his business location. An inventor in another state might develop something new that makes the business’ service or product obsolete. His main supplier might unexpectedly go out of business, making it difficult to meet production. Sometimes, it is impossible to predict an unforeseen event capable of closing a business.
What other factors do you think might be responsible of shutting down a business? Scroll down to drop your views