One of the biggest challenges entrepreneurs face when starting a business is ensuring it succeeds. Recent statistics show that more than one out of five businesses fail within their first year of operation. Understanding the main factors contributing to a business’s downfall can help prevent aspiring entrepreneurs from making the same mistakes.

So then, what are some of the top reasons businesses fail?

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Why businesses fail: top 10 reasons

According to recent research, the leading reason most businesses fail is a lack of financial support. Nearly half of all businesses (47%) have fallen victim to this. This can be a result of failing to secure sufficient investors or not raising enough capital along the way from existing ones to support ongoing operations.

The second biggest reason businesses fail is running out of cash—44% of startups closed because of this. To avoid running into financial problems, consider starting businesses that require low start-up costs, such as dropshipping or print-on-demand.

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Number three on the list of the top reasons businesses fail is the COVID-19 pandemic, which forced 33% of startups to shut down. Experts say this statistic on why startups fail highlights the importance of being vigilant and having the flexibility to pivot according to market fluctuations. 

This is followed by poor market timing and discord among team members or investors. More than one out of five (21%) startups failed because of this. 

Legal challenges rank sixth on the list of the top reasons startups fail. 19% of businesses were forced to shut down their operations because of this. Bureaucracy can be complicated to deal with, especially for first-time business owners. If you’re thinking about starting an online business, make sure you’re aware of and comply with ecommerce laws and regulations for selling online. Setting up succinct systems, practices, and policies can also prevent legal issues from arising. 

Having a flawed business model is the seventh biggest reason businesses fail, affecting as many as 16% of businesses. The research finds that businesses with no solid infrastructure to stand on often find themselves struggling to scale. 

Burnout is also among the top reasons businesses fail, faced by 16% of entrepreneurs. To avoid burnout, consider outsourcing some work to employees or freelancers, and make sure to set aside time in your schedule to unplug and unwind. 

Here are the other top reasons startups fail:

  1. Economic uncertainty: 14%
  2. Poor marketing: 12%

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