Top Five Reasons Start-up Businesses Fail


Research by the U.S. Small Business Administration shows the following top five reasons that start-up companies fail. Make sure that your business does not fall victim to them!

  1. Insufficient start-up capital. Starting a business with too little capital is a sure recipe for failure. Experts suggest that entrepreneurs have the cash equivalent of 6 months of expenses available.
  2. Lack of managerial experience. Passion for starting a company is important, but entrepreneurs also should have skills and experience in key business areas such as cash flow management, marketing, financing, inventory control, and others.
  3. Bad location. Selecting the proper location is a key to success for many businesses. Your location should be convenient for your company’s target customers.
  4. Poor inventory control. Entrepreneurs in businesses that carry inventory must manage it closely. Carrying too much inventory ties up valuable cash, which can sink a new business.
  5. Lack of initial planning. There is a reason that the mantra of many small business counselors is “business plan.” As you will see in upcoming chapters, creating a comprehensive plan allows entrepreneurs to determine whether a business idea is likely to succeed and to identify the steps they must take to create a successful company.
Source: Greg Lopez, “Five Creative Ways to Start a New Small Business in a Turbulent Economy,” Small Business Administration, Office of Advocacy, November 2008, p. 1.

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