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Common Reasons Why Small Businesses Fail

There are currently more than 27 million small businesses with 500 or fewer employees operating in the United States, according to the Bureau of Labor Statistics. With numbers such as this, you may assume that running a successful small business is easy, but it couldn’t farther from the truth. By the fourth year, roughly 1 in 2 small businesses will be forced to close their doors. And by year ten, only 29% will remain.

Why do so many small businesses fail?


Among the most common reasons why small businesses fail is because the owner and/or manager is incompetent. The website StatisticsBrain estimates that 46% of all small businesses fail as a result of incompetence. This may may include failure to pay taxes, pricing products or services too high, lack of planning, and/or poor accounting. Small businesses owners must acknowledge the importance of accounting, keeping their books in order — or if necessary, hire a professional accountant to handle it for them.

Lack of Managerial Experience

The second most common reason why small businesses fail is lack of managerial experience. Small businesses managers are often required to juggle dozens of different tasks at once, some of which may include recruiting new workers, creating schedules, opening and closing the store, dealing with customer complaints, paying utility bills, etc. All of these tasks can wear on an inexperienced manager, sometimes to the point where it forces the business to close. If you are currently a small business owner — or thinking about becoming one — be sure to hire a qualified, experienced manager.


It’s not something that most small business owners want to think about, but theft is a very real concern. Small businesses lose billions of dollars to theft each year. Some small businesses are able to offset these losses by raising the prices of their products or services, but for others even this isn’t enough. What’s even more alarming, however, is that it’s often the business’s employees whom steal from it. One study found that nearly 33% of all business bankruptcies are the result of employee theft.

So, what can you to do to prevent employee theft at your small business? For starters, hire the right candidates. Rather than hiring the first person who submits a job application, conduct a follow-up interview to size up applicants’ character and qualifications:

  • Have they ever done something they regretted and how would they handle it now?
  • Ask them to tell you about a time they had to make a ethical decision (saw another employee steal, found something of value, etc.)
  • Some believe policies should be followed precisely, and other believe they are merely guidelines. What do they believe?
  • How do they define an ethical person or company?

Consider implementing an employee referral program if you don’t already have them. If you like and trust an employee who recommends a new hire, chances are the new hire will be more trustworthy than a total stranger.

These are just a few of the many questions that you should try to answer when recruiting new workers for your small business. For more ideas, check out this article How to Interview to Uncover a Candidate’s Ethical Standards on

Have anything else that you would like to add to this post? Let us know in the comments section below!

Article Name
Common Reasons Why Small Businesses Fail
A shocking 50% of small businesses fail within the first 4 years. We talk about the reasons and how to avoid becoming one of them.

3 Comments to Common Reasons Why Small Businesses Fail

  1. Olivia V. says:

    I’ve worked in my share of small businesses. Unfortunately, I’ve worked for some great people, who just didn’t have a great business sense. Your business finances should not be considered your own personal checkbook. Provide yourself with a rational salary and live off of that. Don’t use the company checkbook to make improvements to your house or buy other items you should be buying with your salary!

  2. Lori says:

    Owning a business in a small town can be challenging because people always expect discounts, donations, favors, etc. when they know you. On one hand, I don’t want to be mean, but on the other hand, I’m in business to provide for my family.

  3. CP says:

    I agree wholeheartedly with this post and with the posts. Being in business in not for the weak. It takes self-discipline and a good business sense to compete in this day and age. That wasn’t always the case.

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