Reasons for small business failure:

The following are the reasons for small business failure:

1. Management reasons:

Owner/manager lacks management skills so he makes poor decisions e.g. inappropriate business structure where it is not clear who is actually in charge of what. Family businesses do suffer this weakness very much. The owner/manager lacks knowledge of the business especially of the whole industry so he makes uniformed decisions.

He may have poor personality, e.g he may fail to get along with employees or clients or he may actually be lazy and since he is the boss, there are no controls on him. A poor personality will also mean he cannot attract customers.

2. Money problems:

• Lack of enough capital to buy stocks.
• Giving too much credit.
• Owner and/or family take too much money out of the business.
• Difficulty in obtaining financing especially from banks because he cannot raise collateral.

3. Poor planning:

• Poor choice of business location.
• Inability to understand market changes and projections into the future.
• Failure to understand effects of changing economic activities e.g. interest rates, pricing, distribution and currency fluctuations.
• Failure to plan future needs, i.e. lack of budgets or forecasts.

4. Poor marketing reasons:

• Failure to stock the right products.
• Failure to establish lasting relationships with the market i.e. cannot acquire "Loyal customers".
• Poor advertising—or failure to do any promotion at all e.g. no directions to his business place. People are therefore unaware of his existence.
• Failure to take part in community affairs. So customers develop negative attitudes towards the owner and his business (common in Kenya especially with Asian owned businesses).
• Unacceptable business practices e.g hoarding, overcharging and tied selling.
• Failure to meet competition either through competitive pricing or promotion.

5. Accounting reasons:

• Poor book-keeping. Therefore no records of credits, debts, or stocks.
• Inadequate tax records.

6. Other reasons outside the control of owner manager:

• Accidents
• Government intervention
• Political instability
• Natural disasters