The causes and impact of business failure among small to micro and medium enterprises in South Africa

Abstract

Background: Over 70% of small to micro and medium enterprises (SMMEs) in South Africa fold within the first 5–7 years of inception and there is generally no agreement among scholars and experts as to why this is so.

Aim: This study conducts an empirical review of literature which summarises itself into a hypothetical framework, putting the causes of SMME failure into some reasonable perspective and finally making suggestions for further enquiry into the subject in future.

Setting: This study is located in the Republic of South Africa where SMME failure and success are important among national strategic priorities in the wake of many economic hardships, chief among which are unemployment, poverty, as well as HIV and AIDS.

Methods: This study conducted an empirical review of literature from an explorative perspective focusing on the causes and impact of SMME failure in South Africa.

Results: Because of varied SMME failure factors, this study consolidated its findings around three factors: entrepreneur incapacity, environmental inauspiciousness and enterprise incompetence. All these are attributed to poor understanding of the varied needs of SMME at each stage of its growth process. The impacts are loss of jobs and income, poverty, social evils and unemployment, among others.

Conclusion: Every SMME failure situation ought to be reviewed as a unique case and treated on its own merit. Consequently, the success of SMMEs would be found in the reverse of these elements, namely, entrepreneur capacity, enterprise competitiveness and environmental conduciveness (alignment).