7 reasons why small scale business often fails

Small scale entrepreneur ship demands success with very limited resources. No time is bad but the actual success depends upon one’s mastery over the complete process from the source of raw material upto the end use of product. Generally the small scale entrepreneur has to choose a specific field in which he should specialize his skill but before choosing that field he should have complete knowledge of the project. Sometimes a small trading or manufacturing unit gives very handsome profits which are not possible with heavy investments. Entrepreneur must be a vast thinker in his line to select his line of action.

Genaro Diaz| Mexican Enterprenuer

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I was second generation entrepreneur and planned to install a shoddy yarn spinning unit in the backward area of Himachal Pradesh. My venture ended up with utter failure and it wasted 10 youthful years of my life and lakhs of hard earned money. After this experience if I set my eyes on my past, following points come into my mind which are most responsible for the success or failure of an entrepreneur.

  • Choice of project.
  • Association of persons.
  • Place of Project
  • Cost of Project.
  • Funds for the Project.
  • Marketing of finished product.
  • Day to day management.

1. Choice of Project : It is most important. The choice of small business. Trading or Manufacturing-should be highly viable (profitable), least risky with minimum investment but this is possible if one is vast thinker of his line.


2. Association of Partners : A proprietorship firm is best for trading but in manufacturing line partnership is more suitable. Practically it becomes very difficult to have good rapport with partners for a long time. This generally spoils even good viable projects. The same happened with me also.

3. Place of Project : A small scale unit — Trading or manufacturing should market If it- is away from marketing and sale is made through agents, cornment gives many facilities to install units in backward areas but in the run same scale units in backward areas become very difficult to handle to limited resources. I installed my unit in H.P. and it became difficult-handle the sales. Transportation of finished yarn was also very costly and information gap between sales and production line became difficult to fill.

4 Funds for the Projects : Heavy loans can be taken, from the banks or financial institutions upto 75% of the total cost of project. But if we make a study we that even by an institution it becomes a heavy burden on the entrepreneur because the rate of interest is high and’ economy of the project collapses due to heavy interest. Financing of raw material for running the unit is easily manageable but financing of plant and machinery should not be more than 30-35% of the total cost of plant & machinery.

5. Cost of Project : In manufacturing unit about 25% of the cost can be reduced in plant and machinery if one has the technical knowledge of the . machinery -to be installed. Wrong choice in the installation of any machinery or even a part of machinery became a negative point because of heavy investment. The investment in fixed assets is such a meter which goes on moving 24 hours, even of the unit is not working.


6. Marketing of Products : The promoter of the venture should keep marketing directly in his own hands. If the goods are being sold on credit basis, then the riskiest thing is collection from buyers. Almost all SSI face this problem and ultimately many of them face closure due to late or non-return of payments from debtors.

7. Day to Day Management : Good administration, correct decisions, smooth functioning, day to day accounts are important factors. Theft in the production units is another serious problem which causes heavy losses and must be handled intelligently. .


  • Right selection of project.
  • Right choice of place of project.
  • Minimum loans, avoiding the loan on plant & machinery.
  • Either sole proprietor or partnership if good rapport with partner can be maintained.
  • Sale and purchase in the hands of the entrepreneur only.
  • Avoid selling goods on credit basis.
  • Constant watch to avoid theft in factory.
  • Production of quality goods.
  • Very strict watch on day to day affairs.
  • Facing the stress situation intelligently.


  • Wrong selection or purchase of raw-materials.
  • Piling up of unsold stock.
  • Poor quality raw-material/finished product.
  • Credit sales without realizing credit- worthiness of debtor.


This article is written By Harsh Kumar

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