There are various reasons behind the collapse of these businesses and they can be traced to the following reasons:
Lack of Capital
No business can succeed without enough money to operate daily. Once the capital runs out, the business goes bankrupt and thereby folding up
The situation is very pathetic in Nigeria, most small businesses lack needed funds. Commercial banks do not want to loan funds, and when they loan these funds their interest rate is too high, this discourages potential lenders.
Epileptic Power Supply
The power sector in Nigeria is not reliable, most businesses are now forced use petrol or diesel generator to sustain their business. This has affected the running cost of these businesses which are barely managing to survive negatively. The present move by the Nigerian Government to privatized the power sector is aimed at encouraging private investors to fully utilize the huge potential available in the Nigerian market.
Any business can fold up due to low patronage from customers. This low patronage is often caused by the harsh economic situation which has forced business owners to cut down important needs.
This is an important factor in the survival of every small business. The influence of management on business success cannot be undermined. Most small and medium scale business are privately owned, and this can often affect the choice of who makes relevant decisions. The decision about who manages these businesses is influenced by family ties and relationship without respect to experience and business skills. This can ultimately bring down the business in the long run.
Violence in most part of Nigeria has caused most of the small businesses to close up. Militant activities, kidnapping and ethnic and religious crisis have conspired to ensure that the average business life span in Nigeria is reduced greatly.
Fluctuating Government Policies
The constant change in Government has also resulted in change in Government policies.Some of these policies do not support the survival of business, as they put pressure on the limited resources of these small businesses. In some cases multiple taxation takes place, imported goods may also be unduly delayed due to change in government policies.
The creative ability of the management or the owner of the business can serve as an indispensable weapon in the time of low sales or when the business is faced with very high competition. Most business owners lack creativity, hence the high rate of failed businesses. Creative entrepreneur study the economic situation, and are forced to diversify their operation to counter any adverse effect that would otherwise have bad implication on the operation of their business.