15 Reasons Why Businesses Fail



possible reasons why businesses fails

Ever wondered why some businesses fail? Some people operate one successful business to another while some others fail to succeed. Is there an untold secret? One thing that is certain is that a business will almost fail because of the entrepreneur’s attitude.

“It is not the plan that is important, it is the planning” – Graeme Edwards

There are approximately 17 million small and medium enterprises in Nigeria according to a 2012 data by National Bureau of Statistics.

It is an impressive number, but it might interest you to know that less than 50% of them survive till date. This articles article lists some of the most common reasons why businesses fail.

15 Reasons Why Businesses Fail

  1. Inadequate Planning

Businesses fail because of the lack of foresight. Most business owners only think short-term instead of thinking short-term and long-term planning simultaneously. A good business plan should be able to forecast where the business will be in the next few months to few years. “it is like attending an interview and the interview asks you where do you see yourself in the next 5 years?” this is simply to test how much of a good planner you are. Same theory can be applied in business.

Always include goals and results that are measurable. Having specific to-do lists with dates and deadlines. If you fail to plan, then you have planned to fail and this will damage your business.

  1. Leadership Failure

Businesses fail most times because the owners exhibit poor leadership skills. The leadership must be able to take calculated risk to make the right decisions. A good leader must possess the qualities of an entrepreneur. From financial management down to employees, leadership failure will lead to the collapse of the business. To be a good leader, you must have the quest for knowledge, learn, study, do personal research, find a mentor and ask questions.

  1. Lacking Uniqueness/Value

In business uniqueness and value are one of the key factors. If you are offering the same products or services as others are offering, what makes your own stand out? What new thing are you bringing into the market, to make customers come to you? How have you added value?

Uniqueness could be in form of size or shape, just do something that makes you stand out from the competition. This is why most businesses fail, they come into the market with the exact same thing other marketers are offering and they realize that they are struggling.

  1. Ignoring Customer Needs

Every business that ignores it customer needs is bound to fail. Customers often provide feedback on how they believe a goods or services could be made better and it is a wise decision to listen to them. Never forget that a customer is king and without the customer you have no business. Always be keen to find out if your customers are satisfied with your product. It doesn’t matter whether they give a negative review; see it as an opportunity to make an improvement.

  1. Inability To Learn From Previous Mistakes

It is a well-known fact that sometimes mistakes are unavoidable and could lead to failure which is usually bad, yet most business do not learn from their past mistakes. Learning from failure is sometimes difficult, but this is what sets you apart and makes you a better entrepreneur.

  1. Unprofitable Business Model

Second to leadership failure is starting a business on a faulty model. This would mean having no business plan and running a business for which there is no proven track record of high revenue stream. You could have a solid business idea in theory, but when it comes to execution it collapses. Why?  This is because you have not placed any strategic guidelines or safeguard in place.

It is advisable to always carry out a comprehensive market analysis before venturing into any business. Develop a solid business plan that includes potential obstacles and competitor activities.

  1. Poor Management (Financial and Material)

Poor management can be in form of finance or material. Businesses fail because most lack an emergency funding plan, reserve money in times of miscellaneous needs. Keep records of all financial activities and always make decisions based on the information at hand not some estimates. Poor accounting practice leads a business to failure. Working without appropriate standards as set by standard bodies, poor communication and customer relation all set your business for failure.

  1. Lack Of Capital

Lack of capital to carry out projects or be able to deliver projects is not a good sign for potential investors. Because  it further depreciates trust and makes it difficult to grow a business.

  1. Location

In setting up a business, locations should always be given the utmost priority. A bad location is definitely a bad and advantage. It is important that your business is located in a place that easily accessible on foot and motorcades. A poor location might mean low business patronage.

  1. Low Profit

As an entrepreneur your sole aim is profit and therefore you must always keep your eyes on profitability at all times. According Small Business Trends, 40% of small businesses are profitable, 30% break even (the point at which cost or expenses and revenue are equal) and 30% are losing money.

  1. Poor Inventory management

Too much inventory will have a negative effect on your profitability whereas little inventory will hurt your sales.

  1. Persona Use Of Business Money

The business belongs to you does not mean you can lavish the funds meant to run the business. You need to realize that your business is not your bank account.

  1. Lack Of Focus

Every entrepreneur must have focus, without it; your business will lose out to competition.

  1. Lack of Succession Plan

Future leaders to take over a business should be identified in time, so as to prevent business failures that may be created by sudden death, retirements or any unforeseen circumstances.

  1. Wrong Partnership

The wrong partner will drag your business down, so choosing your partner is key in any business. It is important to know the kind of company or business you are going into partnership with, as some of them might just enslave you.


It is true that businesses fail, it is also true that businesses succeed. Those that succeed are a result of hard work, dedication, a carefully planned and executed strategy, including having a positive mindset.

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Daniel is a Chemical Engineering graduate, his passion for research, writing and sharing ideas led to the creation of this blog.

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