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  • Essay / Why Many Small Businesses Fail - 739

    Research has been done on why small businesses fail. Said and Hughey (1977) report that the five problem areas that indicate a lack of managerial capacity in small businesses are problems of cash management, personnel, record keeping, merchandising, and tax planning. Dickey (1994) states that small businesses fail when cash flow is not managed properly. When a business starts or grows, the money should be reinvested in the business and not kept by the owner as profits. The Small Business Advisor (1999) article states that the main reasons why small businesses fail include poor customer relations, bad employees. relationships, lack of staff training and poor budgeting. Peacock in (2000) is of the opinion that the root cause of failure is ineffective management, ineffective financial management and poor accounting. Van Aardt, van Aardt and Bezuidenhoud in (2002) identified eight reasons for small business failure - poor management skills, poor record keeping, poor financial management and too little effort to market the business, poor planning , poor pricing practices, poor human resource management and inability of the business owner to adapt to the changing demands of a business. Ladzani and van Vuuren in (2002) state that employee training is not the only solution for small businesses to succeed, but that problems such as lack of financial resources, lack of access to markets, lack Support services and low literacy levels also need to be addressed. The European Federation of Accountants (2004) stated that the internal causes of business failure are poor management, deficit...... middle of paper ...... 990) is of the opinion that Companies that do not have good inventory control will have higher costs and affect their cash flow. Additionally, poor inventory control encourages employee theft. Longenecker et al (2003) state that maintaining inventory at an optimal level will save money and contribute to operating profits. According to Jones and Tilley (2003), poor financial management constitutes a serious obstacle when starting a business. Lack of funds and investment capital are the main challenges behind the high failure rates among SMEs. Resnik (1988) reports that businesses fail each year due to fatal criminal losses, primarily due to theft that can hit a business from any source. whether a professional criminal, a customer, a supplier or an employee.