Before venturing into business, it is important to understand the probability and causes of failure.
According to data from the U.S. Bureau of Labor Statistics, about 20 percent of small businesses fail within their first year. By the end of their fifth year, roughly 50 percent of small businesses fail. After 10 years, the survival rate drops to approximately 35 percent.
Our research, analysis of the literature and secondary data sources revealed that some of the main causes of failure for Small and Medium Enterprises are:
- Poor or incompetent management.
- Poor cash flow management.
- Poor business plan.
- Lack of cash or capital
- Economic factors
- Increased overheads
- Competition
Apart from "inability to raise capital" and "cash flow mismanagement", the other two main causes of failure identified by our research findings appear to be poor management and business plan. The former has been championed by the majority of data sources, whereas the latter appeared to be unpopular, with the argument that economic factors and lack of finance were more relevant. However, a closer analysis by our study revealed that a "poor business plan" was more significant.