Research Question 4

What are the major reasons for business failure?

When creating a new business, it is imperative to understand the common reasons for failure of a small business. In the United States, 8 out of 10 businesses fail in their very first year (Wagner 2013). There are numerous reasons, both facts and theories, explaining why business failure is so common. The US Small Business Administration (SBA) (2013) reports that the four most common reasons included: money, location, management and unexpected growth.

When starting a new business, most people roughly estimate the venture capital that is required however, they often underestimate the cost of maintaining a business. Employee wages, taxes, cost of inventory, total profits, and total expenses are important projections(Schaefer 2011). According to Professor Steven Taylor, a Business Professor at Worcester Polytechnic Institute, money is the number one reason for business failure within the informal settlements. If this project qualified, the group aspired to apply for government grants from the Black Economic Empowerment, Employment Conditions, and Rural Upliftment sectors.

Another key element to success is location. It is important to understand the targeted clients and make sure that there is easy access to the business with regards to traffic and parking. In addition, the location should be in a safe environment and within a reasonable distance of the targeted customers (Schaefer 2011). The team understood that the WaSH-UP facility is located in a promising location in the community.

Management of the kiosk would inevitably determine the sustainability of the facility. The group would need to establish a system for proper financing, purchasing, selling, hiring, and managing employees (Schaefer 2011). The team would also need to find solutions topossible problems such as theft and fraud. The group hypothesized that the success of the kiosk would be dependent upon a management system, employees, good working environment and establishing business projections.

While it is important to have goals, over expanding due to unexpected growth in revenue can be detrimental to a business (SBA 2013). Schaefer states, “success is not measured by how fast a company expands;” slow and steady has been proven most successful (Schaefer 2011). Good months, weeks, and days create optimism and force boosts in inventory of products. It is important to understand why sales fluctuate before expecting permanent increased sales.

While these reasons for business failure have been established within the United States, many of the same reasons for failure exist within the informal settlements of South Africa. In South Africa, lack of proper funds has proven to be the number one reason for business failure. However, having assets, government grants, and other sources of revenue have been proven to increase the chance of obtaining a successful business (Empire).