Why Small Businesses Fail

Running head : Small Business Failures

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Introduction

Starting a business is a risky venture . Several studies have shown that over 30 percent of new small businesses fail within the first two years of establishment and more than 50 percent completely go out of business The latest research by Small Business Administration (SBA ) shows that two thirds of new business ventures survive for at least two years , and only 44 percent survive beyond four years . These statistics indicates an improvement from the earlier studies

which suggested that about 50 percent of new businesses fail in their first year and close to 95 percent failure within five years . Small businesses are important in any economy and therefore it is critical to understand why they fail Reasons why these small businesses fail is debatable and opinions about keeping these businesses survive are varied . However , several factors have been identified as contributing to the failure of small businesses This examines these factors and suggests solutions to solve them (Schaefer , 2006

Factors contributing to failure of small businesses

The first factor is undercapitalization . Most business entrepreneurs have underestimated the amount of start up capital needed which has forced them to close down the business prematurely before attaining their goals . They have also placed high expectation on their sales to boost their capital base which also failed . It is therefore very important to determine the only to start up but also to sustain...