General Causes of Business Failure

Authors: Brian Henehan, Cornell University,, and Bruce Anderson, Cornell University

Reviewers: Gerald White and Brent Gloy, Cornell University

First, we will take a look at some of the causes of business failure in a specific industry sector–agriculture, forestry and fishing. The Economic Analysis Department of the Dun and Bradstreet Corporation collects and analyzes data on business failures. Table 3 categorizes the common causes of business failure including: economic factors, finance, experience, neglect, disaster, fraud and strategy.

Table 3. Causes of Business Failures: Agriculture, Forestry and Fishing.

Economic Factors Causes (in percent)

High interest rates 0.0

Inadequate sales 0.0

Industry weakness 27.0

Insufficient profits 31.8

Inventory difficulties 0.5

Not competitive 1.0

Poor growth prospects 0.0

Poor location 0.0

Subtotal 60.3

Finance Causes

Burdensome institutional debt 6.9

Heavy operating expenses 8.3

Insufficient capital 14.2

Subtotal 29.4

Experience Causes

Lack of business knowledge 4.9

Lack of line experience 0.5

Lack of managerial experience 0.5

Subtotal 5.9

Strategy Causes

Excessive fixed assets 0.5

Overexpansion 0.0

Receivables difficulties 0.0

Subtotal 0.5

Neglect Causes

Business conflicts 0.5

Family problems 0.5

Lack of commitment 0.0

Poor work habits 0.0

Subtotal 1.0

Disaster 2.9

Fraud 0.0

TOTAL 100.0

Results based on primary reason for failure.

Source: The Business Failure Record. Economic Analysis Department, The Dun and
Bradstreet Corp., 1998.

A relatively small number of factors account for a high percentage of failures. Industry weakness (27%), insufficient profits (31.8%), insufficient capital (14%), lack of business knowledge (4.9%) and disaster (2.9%) account for a total of 80.6 percent of business failures in these industry sectors. Many new cooperatives formed operate in these business sectors; it is safe to say that these same factors contribute to cooperative business failures.