10 Major Reasons Why Many Small Businesses Fail in Nigeria

10 Major Reasons Why Many Small Businesses Fail in Nigeria

Why do many small businesses fail in Nigeria? This should be uppermost in the minds of wannabe entrepreneurs. A great number of small businesses fail in their first 10 years of operation.

Many small businesses fail as a result of many factors and reasons. Some of them are brought about by the entrepreneur himself while others are caused by the environment. It is the duty of the person starting the business to analyze why he will either fail or succeed in the business. He will then move on put things in place.

Many small businesses fail because they don’t understand the importance of SWOT analysis. SWOT analysis involves understanding the strengths, weaknesses, opportunities and threats of the business. If they do this well, then they can avoid failure.

When Pickens Boune said that, “There are no disasters in business that you can’t avoid if you see them coming and make the adjustments,” he meant that if you do your home work very well, you will always avoid certain issues.

We have put together a list of reasons why many small businesses fail in Nigeria.

Related: 10 real causes of small business failure in Africa

10 Reasons why many Small Businesses Fail

  1. Lack of Managerial Skill

One of the most important aspects of succeeding in a business is managerial skill. This is why it is one the reasons why many small businesses fail. When an entrepreneur lacks the ability to manage human and material resources at his disposal, then failure becomes inevitable.

An entrepreneur must be able to manage the employees, cash flow, production line and other aspects of the business. In the event that he can’t handle all of this, he should hire a good manager to do that for him.

Also read: challenges faced by African entrepreneurs

  1. Wrong Business Decisions

See what the Mafia manager has to say about decision making, “Before making an important decision, get as much as you can of the best information available and review it carefully, analyze it and draw up worst case scenarios. Add up the plus or minus factors, discuss it with your team and do what your guts tell you to do.”

Many small businesses in Nigeria fail because of the very many wrong decisions made by their owners. Be careful and tactical with your decisions. Wrong decisions lead to wrong investment, wrong loan collection, wrong employees and so many other wrong things.

  1. Harsh Government Fiscal, Economic and Monetary Policy

Unfortunately, this cannot be avoided. The government will always make policies that will affect you positively or negatively. You have to be ready for emergency situations. Your exit strategy has to be tight. It is not usually easy but don’t let it be the end as many people do. Your corporate reflexes are measured by how fast and well you respond to emergency situations.

  1. Inability to Move Swiftly With Trend and Changing Technology

The world is ever changing. Remember, the only thing that is constant is change. Naturally, some people are not attuned to change. They hate it. It is okay in politics and fashion but it is bad for business. Many small businesses fail because of this. You have to be ahead with innovations that suit the trend. You have to always upgrade.

As people are going digital, don’t remain analog because that won’t help you as an entrepreneur. Remember, trend is your friend, not your enemy.

  1. Fierce Competition

Many small businesses fail because their owners are afraid of competing with other entrepreneurs. The world is competitive and you have to compete with the best in the world. If you will be able to compete, you have to be creative and innovative otherwise other people will kick your ass.

  1. Wrong Business Location

The location of your business is very important to its survival. Many small businesses fail because they are located in the wrong place. You have to consider factors such as road network, nearness to high traffic zone, accessibility and patronage level of customers, population, demographics and so on when choosing your location.

  1. Lack of Knowledge and Experience in the Chosen Field

The biggest risk in business is not knowing what you want to do. It is dangerous. You have to get all the necessary knowledge and experience about a particular business before you venture into it. It is that simple.

  1. Bad Debt

This is another reason why many small businesses fail. When you give too much credit to customers, you are likely going to start having deficit in your business. An entrepreneur must be able to manage cash flow. You cannot afford to operate on deficit and your customers are important. You must devise a means to balance the equation.

“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.” – Ajaero Tony Martins

  1. Insufficient Capital

Insufficient capital is another reason why many small businesses fail. It is the duty of the entrepreneur to always provide the capital needed for the business.

In a case where you have insufficient capital and the business is finding it difficult to access funds from bank and investors; it is the entrepreneur who must resolve to bootstrap financing, which is working with the limited cash, eliminating unnecessary expenses, establishing a credit line from suppliers and producing only on demand to avoid tying up resources.

  1. Internal Fraudulent Activities

“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.” – The Mafia Manager

You can’t afford to have enemies within your camp. It is bad for business. Be careful and smart with your employees so that they don’t defraud you. Sleeping with the enemy is not good for business.

We have given you 10 reasons why many small businesses fail in Nigeria. If you are struggling right now in your business or you want to start a new business, check out these tips and make smart choices.