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Why Small Businesses Fail: SBA

SBA says 50% fail during first year

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The U.S. Small Business Administration has seen lots of small businesses come and, unfortunately, go. According to the SBA, over 50% of small businesses fail in the first five years. Why? What goes wrong?

In his book Small Business Management, Michael Ames gives the following reasons for small business failure:

1. Lack of experience

2. Insufficient capital (money)

3. Poor location

  4. Poor inventory management

  5. Over-investment in fixed assets

  6. Poor credit arrangements

7. Personal use of business funds

  8. Unexpected growth

  Gustav Berle adds two more reasons in The Do It Yourself Business Book:

  9. Competition

10. Low sales

These figures aren't meant to scare you, but to prepare you for the rocky path ahead. Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, success can be yours if you are patient, willing to work hard, and take all the necessary steps.

On the Upside

It's true that there are many reasons not to start your own business. But for the right person, the advantages of business ownership far outweigh the risks.

You will be your own boss. Hard work and long hours directly benefit you, rather than increasing profits for someone else. Earning and growth potential are far greater. A new venture is as exciting as it is risky. Running a business provides endless challenge and opportunities for learning.

For more information on assessing your readiness, see: Are You Ready for a Small Business? Source: U.S. Small Business Administration

Buy Books Mentioned in this Feature

Small Business Management by Michael D. Ames
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The Do it Yourself Business Book by Gustav Berle
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