An Analysis Into The Causes Of Failure Of Small Scale Business Organisation In Enugu


The number of business currently in the hand of receivers and those consider by various banks for receivership assignment and the rate  at which others are folding up suggests that many companies are in difficulties that urgent solutions must be sort to reverse the trend. 

The problems of  business failure is the order of the day and financial institutions such as banks are also threatened, then it becomes a national courses for concerns.  As we pointed out elsewhere business failure represent a tremendous waste of resources.  Buildings and stores vacant, bank loans are not paid off, employees are laid off and tax collections go sown and enterprenuals spirit dies.

Each of the problems that confront a small business  in its own right could constitute a great threat tot he suuch problems are taken in combination, the survival chances of such business become substantially reduced. We will indicate here that the survival of small business in nay badly, managed economy to a great extent depends upon sheer luck, rather than on technical or managerial capability as would have been the case.  But then this dependence is only so an extent.  There are still other internal and liable venture that lead to its unwarranted early collapse.

It is worthwhile to analyze the course of business failure. Naturally, it is for less. Gainful to learn from other people’s failure than form one which could have been avoided.  But the difficulties that often confront anyone attempting an analysis f the failure of a small business are usually hectic.  The founders of such business and some key members may have left the area  as a result of the collapse as such could be difficult to locate. Secondly, even when the owners is writing a discuss, he may not have kept records of his daily activities.

Small Business in Nigeria fail several months even before the owner bows out within these earlier months when the business began to turn sour he would have loose interest in record keeping and night have inadvertently destroyed records of the earlier period when the business still show signs of success.

In the absence of reliable data on the number of comprise that have packed up or are in the process of doing so, I have limited very analysis to media articles, professional journalists, some reports if the  central Bank of Nigeria (CBN) text book and personal experiences.

I gathered much information/data on why small business fail in Nigeria, during the cause of my investigation there are no longer operational due to business failure.

The information gathered from the above source are hereby analysis as follows:

  1. Definition of Small Scale Business
  2. The meaning of business failure
  3. Causes of business failure
  4. Summary of literature review.



The origin of the subject area according to small Business Act passed by the united state Congress in 1953, small business is defined as one which is independently owned and operated and not dominant in its of operation.

According to Nigeria third national development plan, manufacturing establishment whose employees are less than ten and investment ion plants and equipment are more than six hu and equipment are more than six hundred thousand naira is often refereed to as small scale industries   Also Central Bank of Nigeria refers to Small Scale Business as any business whose annual sales turnover is less then ½ a million naira.

According to Small-Scale Industrial development programme, the small scale business in Nigeria can be defined as any manufactured processing or services concern whose initial capital investment is not more than N150, 000 in plant and equipment bought.

Definition of small scale business for the purpose of this research required some measurement of its size in comparison with large firms.  Numerous measures including the sales volume, the area covered by its operation, the number of staff employed and so on.  When these variable are used n comparing small and big business, it becomes very clear that small business, is relatively small.

Small business is usually owned and managed y the owner. A small business is one which possesses some or all of these characteristics.

  1. The initial capital is usually supplies by an individual owner or small group of owners.
  2. The manager of the business usually is he owner.
  3. The size of the business is relatively small when compared with big firm within its industry.
  4. The area of its operation is mainly local that is the small business tries to satisfy people living within its immediate environment

The small businessman and woman are the person who operate their business within their localities such as Radio and T. V shops, banking hair saloon, Private hospitals and restaurants,

Even though most of our economic policies are geared towards big business, risk of starting a small  business  and rapid failures of these ventures, scare many people away from starting small business.  Notwithstanding, many small business strive to exist. These chances for the success can be improved upon only if, the small business owner can incorporate the   scientific method of management which include: good human relations and good leadership.

Although we have many big businesses in our country and that they are important in increasing production through mass production and mass distribution.  Without these mass facilities, the present standard of living in Nigerian could not have been possible.

Many small companies depend solely on large ones for raw materials of finished goods which would have been very expensive without the economic of mass production or not even available without the big business firms which product and distribute them, Also the big firms depend on small firms, mass production companies recently realise that they could cot disturbed their goods and services without the help of small firms, Experience has show that an average of 500 every major manufacturing firms in Nigeria.

To understanding the important nature of small business scene in this country, we must realise that out f 3 million business firm in Nigeria 2 million firms are small.   This shows that great majority f Nigeria business firms are still small and independently owned and operated by small and business proprietors.  This guidance makes it very clear that small business firms constitute the backbone of free enterprise which this countries operates.

Among these activities mentioned above the most small scale business activities Nigerian is often centred on manufacturing wholesaling, retailing and service.


The relevant problems in this are

  1. Lack of capital
  2. Incompetent Management
  3. Poor Location
  4. Improper pricing of products
  5. Inability to satisfy the customers demands.



          One of the acute problems facing the small scale business is inability to raise enough fund to finance its operation.  Many of the small business owners do not have collateral to present in the bank to enable them obtain loan when the need arises.

A small business may have good intention and nice prospects but fail to survive because of lack of fund.


Sometimes he managers of small business are not competent enough to perform the managerial functions such as planning, co-ordinating and controlling, these functions are necessary for the survival of any business.

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