Why Do Small Businesses Fail And How To Minimize Risk Finance Essay

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It has been suggested that the impact of potential causes of small enterprise failure might be reduced if business owners got appropriate advice. This paper reports the results of a national study of small retail and service firms to determine the failure reasons of starting a business. Much of the literature indicates that success and failure of small businesses has a lot to do with preparation of the business owner.

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People who establish a plan for success are usually the people that have better chances of success with their small businesses.The primary audience for this paper are people who are considering starting their own business. A review of the literature was conducted to determine reasons for business failure. The paper concludes with suggestions of how might build on these efforts.

Table of Contents


P.4 2.0

Hypothesis Development

P.5 3.0 What is business failure? P.5 4.0 Literature review 5.0 Method 5.1 Research Design 6.0

Statement of Results


Analysis and Discussion





10.0 References P.


More and more people are considering starting their own business. By opening a business there could be large profit to be made. However, there are losses may occur as well. Some peoples argued that starting a business in a field that they know well would not fail. Knowing if starting a business at all is what most small businesses fails to consider. According to an SBA Study done in 2005, “About 1/3 of Small Businesses fail in the first 2 years, and just over half fail within 4 years.” (as citied in Shawn, 2009). These statistics are depressing for people looking to start up a new venture. Richard (2000) claimed SMEs in successful business networks can generate up to 50% more in gross revenues than firms that work in solitude. (p.12). However, Richard (2000) concluded that the most significant reason for this high failure rate is the inability of SMEs to make adequate use of essential business and management practices. (p.12). Abdelsamad and Kindling (1978) stated that although failures cannot be completely avoided in a free enterprise system, the failure rate could be reduced if some of its causes are recognized and preventive action is taken. (p.24). It is important that small business owners evaluate if they are compatible with entrepreneurship in order to prevent from being part of the failure statistics. Most of the studies on business failure have been elaborated into a predictive perspective. Those business failure prediction literatures mainly analyses statistical models that tend to determine. Moreover, the predictive literature has strong limitations and it provides few clues as to why and how business failure takes place.

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