3 Reasons Why Businesses Fail in South Africa

A large percentage of new businesses in South Africa fail. This could be in the order of anywhere between 30 and 50%. Another large percentage of small businesses don’t achieve their full potential and the three main reasons for this can be summarised as a lack of information, red tape and a lack of financial management skills.

1. Access to finance

Many start-ups rely on financial support from family and friends. However, as many business owners have not planned correctly, they often find that the money they need to start and subsidise the business is not enough. Costly trial and error in the use of capital often results in business failure.

2. Poor planning

Many potential entrepreneurs have no formal business training, and tend to ignore the vital step of developing a business plan. As a result they do not have a realistic grasp on the costs, responsibilities and medium- to long-term requirements of a business.

3. A lack of financial expertise

Many entrants do not understand the financial requirements of a business or the VAT, tax, costing, financial controls and other obligations that are part of the business mix.

4. Poor stock and cash flow management

The link between stock on the shelves and the costs attached to having too much, too little or incorrect stock on hand is not appreciated as proper controls do not exist. Poor calculation of margins and cash flow often lead to crippling pressures impacting on the business.

5. Failure to differentiate between company and personal accounts

Using the company account as a personal account leads to confusion regarding the true costs and profitability of the business. This is further complicated by poor record keeping.