Why are younger and smaller SMEs more likely to fail than their older, larger counterparts?
Notes for question: Key activities need to be identified and undertaken to ensure the success of a venture. Some need to be completed pre-launch, while some are key operational activities that derive from the business model and its core value proposition. The critical success factors are those key activities that must be get right to ensure the successful launch and day-to-day operation of the business. Most firms are born to stagnate or die and not to grow to any size. A business might cease to trade for many reasons, not all of them bad. However, when the sole trader, partners or company are insolvent then there are unpaid creditors. The main factors influencing the statistical likelihood of failure are age and size of business. The causes of failure involve a coincidence of external and internal influences that might occur simultaneously:
External influences include: (a) The general economy, which SMEs cannot influence but has a large
influence on them; (b) Luck and resource levels, which likens failure or success to a game of chance;
(c) Market/Industry structure, where the degree of competition can have a large influence, (d) Other
opportunities that face individuals, rather than just the state of their business.
Internal influences include: (a) Personal character of the entrepreneur, particularly a tendency to be
overly optimistic; (b) Lack of managerial capabilities of the entrepreneur, which can lead to poor
financial control and/or marketing and/or planning; (c) Limited financial resources, which can lead to
cash-flow problems often arising through over-trading.
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