Why Small Businesses Fail
This study is now available at http://commons.und.edu/theses/4397
Abstract
Small businesses fail at an alarmingly high rate. The seriousness of this is underscored by the impact of small business on the economy. Small business accounts for 45% of the U. s. gross national product and employs nearly 60% of the work force.
External factors such as the environment are responsible for some failures. Internal causes of failure parallel all functional areas of the business: however, approximately 90 percent of all small business failures are related to management incompetence or inexperience.
Two major failings of the incompetent or inexperienced manager are the lack of a business plan and poor managerial accounting techniques. Failure to plan, both short- and long-term, results in an operation which has no clear direction. Poor accounting techniques prevent management from assessing cash flow and profitability.
Guidelines for preparing business and strategic plans are presented as are indicators to assess the financial performance of the business.
A survey of local businesses revealed that the use of proper planning and accounting techniques are limited, especially in the very small businesses.
The number of small business failures can be reduced by improving the small business manager's managerial skills.