The causes of the failure of new small and medium enterprises in South Africa

Abstract

New small and medium enterprises (SMEs) are an important vehicle to address the challenges of job creation, sustainable economic growth, equitable distribution of income and the overall stimulation of economic development. New SMEs suffer from a high failure rate in South Africa. The high failure rate of new SME paints a bleak picture of the SME sector’s potential to contribute meaningfully to job creation, economic growth and poverty reduction. The primary objective of this study was to determine the causes of the failure of new SMEs. The review of the literature revealed that the causes of the failure of new SMEs are both internal and external. Internal factors include lack of management experience, lack of functional skills and poor staff training and development and poor attitudes towards customers. External factors include non-availability of a logistics chain and a high cost of distribution, competition, rising costs of doing business, lack of finance and crime.