10 Real Causes Of Small Business Failure in Africa
Businesses are started and others fail. That is the way life it is. Big businesses fail and small businesses fail. It is alarming though that small business failure in Africa is increasingly becoming the norm.
A lot of businesses that were started this year have already failed and the year is not even over. People have to do better than they are doing.
If you fail, well, shit happens, get up and continue. According to Henry Ford, “failure is an opportunity to start again more intelligently”. Be smart about the business you are into or about starting.
The signs of business failure sometimes present themselves to us but we don’t see them. We are too blind to see them. When you go through these causes of small business failure in Africa, you will be able to identify these signs and act on them before they become something beyond you. That is what we hope to achieve.
Related: 8 IT security lessons for small businesses in Africa
10 Cause of Small Business Failure in Africa.
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High Debt Ratio
How entrepreneurs manage their debt ratio is a major cause of business failure in Africa. You must be able to persuade your debtors to pay up on time. It is very important. When you are heavily owed probably by giving too much credit to customers, you run the risk of failing in your business.
An entrepreneur has to be tactical. The words of Tony Martins sum it all. He said that, “there is one paradoxical characteristic every entrepreneur must possess to succeed. An entrepreneur must be able to persuade his debtors to pay their debts promptly and at the same, must tactically delay payments to his creditors.”
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High level of mismanagement
If you want to understand a thing or two on management, read mafia manager. This excerpt from the book is of particular interest. “There will be times when you will have to be abrasive, even brutal to members of your staff. Don’t worry that your people will say bad things about you because of this. They already have. But in general, try to be pleasant and accommodating. Try to please the greatest number who work for you that you can; antagonize the fewest. Blow smoke.”
Small business failure in Africa is also down to mismanagement. You must manage your human resources as well as other resources well to be able stay top of your game.
Related: 10 common challenges faced by african entrepreneurs
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Unexpected resignation of key staff
For small business failure in Africa to be minimized, people are expected to avoid resignation of key employees especially when they are unexpected. It is a very big problem for the small businesses that cannot compete with the big boys.
This statement by Bill Gates only further magnifies the importance of holding onto your employees. “The competition to hire the best will increase in the years ahead. Companies that give extra flexibility to their employees will have the edge in this area.”
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Inadequate Inventory or stock taking
Another factor that leads to small business failures is none other than inadequate stock or inventory. There is no need dwelling so much on this because the point is clear. When you have inadequate stock for any reason, be it for production or for your customers, your business is headed for failure. You should also bear in mind that if you stock too much inventory, you are still bound to fail because you are tying down working capital.
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Marketing your products below cost price
You established your business so as to succeed in it. To succeed you have to make profits. Profit refers to the difference between cost price and selling price. For you to make profit, your selling price must be higher than the cost price.
Small business failure occurs sometimes as a result of small businesses selling their products below cost price. This has a negative influence on cash flow. There are lots of reasons they do this but the truth is that there is no justification for doing this. You will ultimately fold up.
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Dwindling working capital
Unnecessary expenditure, too much inventory and weak cash flow management on the part of the entrepreneur can also necessitate dwindling working capital. As you should know, this factor contributes immensely to small business failure.
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Consistent negative cash flow
Negative cash flow on a consistent basis is a factor that could lead small business failure. Cash flow is as important business the way blood is important to humans. You can’t survive without strong cash flow management. Handle it well yourself or get a professional to do it for you.
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Declining Profit
Profit can be on the downward spin but never let it be the norm. You see, declining profit can lead to small business failure. This could be brought about by competition or deflation. You can remedy it by increasing sales volume or by diversifying.
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Loss of market share
According to Tony Martins, “Your greatest and most powerful business survival strategy is going to be the speed at which you handle the speed of change. That speed of change is trend.” If you don’t keep up with the trend, you will lose your market share as a result of the competition, new technology, innovation or market.
The only prevention to loss of market share is to keep your ears to the ground for any new industrial trend, technology or innovation. You must also keep an eye on your competitor and be quick to act and adapt to any positive or negative industrial change or once again; you can diversify.
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Inability to secure operational capital
Getting capital can be a great problem. Lack of operational capital is regarded as source of small business failure. You have to see that you source fund from all the means available to you so as to be able to keep up.
You are not expected to fail. The small business failure in Africa is already too much. Try and internalize these ways to avoid losing your small business to failure.
