Business failure is commonly attributed to economic cycles or factors that are outside of a business’s control. Whilst this can be a contributing factor to business failure they are not traditionally the sole source.

Other causes often cited to lead to failure include:

  • squeezed margins
  • falling sales
  • rising material costs
  • the loss of a key customer or major supplier

These factors are typically symptomatic of a business in distress but are not necessarily the cause of failure. 

In reality failure typically arises as a result of both external and internal factors, with the interaction between these factors, and how management address them, being the true underlying cause.  It is management’s inability to plan, drive, act and respond that is most often the root cause of business failure.

External factors are those that are largely uncontrollable by a business, and internal factors are those that can be controlled by management.

Contributing factors to failure include: