Ten Reasons Why Small Businesses Fail

Editor's note: Since 1964, business-management counselors at the nonprofit organization Score have given free advice to small-business clients spanning every industry. They currently serve nearly 400,000 entrepreneurs nationwide each year -- check in every week for their prudent advice.

This week Harry Dannenberg, chair of Score's seminar committee, tells us why small businesses bite the dust. "Avoid them and your chances of survival are much greater," says Dannenberg. Of course, not every point is equally damaging to every business, but the key, says Dannenberg, is to take your attention off your strengths and direct it toward things you're worst at. Here are the top 10 business killers brought into the light of day:

1. Lack of business knowledge and experience.

If you think it would be fun to start a restaurant, realize that you need to know much more than how to cook for your family. "Too often a person doesn't have a business plan, which helps you see from start to finish what's involved in a business," he says.

2. Insufficient capital.

Make sure you know what everything costs. It may sound obvious, but too many businesses realize in the middle of a project that they don't have the funds to carry it through, says Dannenberg.

3. Failure to understand your market and customers.

4. Poor management of employees.

While not the biggest killer for business, if your employees don't have the proper experience and don't know how to handle customers, the whole structure will suffer.

5. Poor location.

This is a prime issue for transportation-centered businesses or restaurants.

6. Poor pricing of the product or service.

While a certain price may be suitable for your business' needs, remember that your competition may be offering a better deal, says Dannenberg.

7. Failure to understand and react to competition.

8. Failure to adequately anticipate cash flow.

Poor budgeting skills will catch up with your business sooner or later. And be careful not to overestimate beginning revenue. "Businesses don't always start rapidly," Dannenberg says.

9. Failure to devote sufficient time to your business.

If you put management in the hands of others too early, says Dannenberg, you risk loosing the pulse of your business and it could quickly spiral beyond your control.

10. Poor control of assets.

Cash, inventory, receivables, fixed assets all need to be kept under careful watch.

Again, Dannenberg stresses the importance of a business plan to avoid any of the above blunders -- and notes that Score can counsel your business on how to formulate one. "Allocation of money and how it's controlled determines more than anything whether or not your business is going to succeed," he says.

Score's nationwide seminars (see right) are also helpful for sorting through the steps that make a business work. "We cover the right avenues to travel down to get a product seen and understood," says Dannenberg. "At the same time, we get people who have successful businesses but don't know how to expand. We take them to the bank and help them to negotiate."