A factor analytic study of the perceived causes of small business failure.

The role of small businesses in the socio-economic development of most countries is highly appreciated. They are easily established and the capital needs are low. They create high employment and faster technological development at a cost lower than larger enterprises. Hence they raise the standard of living of millions of people and stabilize the political and economic status of the respective communities. However, just as the rate of establishment of small businesses is higher, so is the death rate high as well as cited in the literature on small business failure. Small business failure is a subject of study worldwide. This study conducted a survey to find out the factors that are the major source of small business failure in Dar es Salaam region (Tanzania) as perceived by previous small business owners who experienced failure themselves. The data was subjected to a statistical factor analysis which produced four factors being the main source of small business failure. The factors include: management and planning functions; motivation and control; competitive environment; and customer care. Poor management and planning skills was identified as the single, major factor that is responsible for small business failure among the sample group. The study results confirms many other studies carried out elsewhere in the world, i.e. U.S.A., Australia and Great Britain. The researchers recommends training in managerial skills be taken as an important policy objective by both government and non-government small business support agencies in their effort to minimize small business failure. Managerially skilled entrepreneurs are potentially capable of avoiding failures, increase factor productivity and raise the survival rate of the enterprise.