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Why do small businesses fail?

Published: 07/03/2019 By Martin Armstrong

The nature of business is synonymous with risk, but any budding entrepreneur should understand the chances of success before embarking on a new venture. Knowing the precise chance of success is impossible taking into account the myriad factors that need to be taken into account. However, much is known about the average success rate of small businesses.  About 80% of new businesses survive past the first year, but only 50% survive beyond five years.

So the question is why do those businesses fail? The top five reasons have been identified as:

-No market need- you can have a great product or service, effective pricing and a budget, but if no one wants what you are selling, there is little hope

-Insufficient capital-there is nothing you can do if your business does not have enough capital to operate. One quarter of business owners say they are unable to obtain the funding they need.

-Not the right team-lack of a partner and appropriate business advisors

-Competition-be aware of what works and what doesn’t for your competitors rather than becoming obsessed with one or more areas of your business

-Pricing-price too high and you push prospective customers away, price too low and it is difficult to make a profit

By studying the primary reasons for small business failure, you can give yourself a greater chance of success.