Causes And Consequences Of Business Failures In Nigeria (A Case Study Of Selected Businesses In Owerri, Imo State)

Project and Seminar Material for Business Administration and Management (BAM)

Project and Seminar Material for Business Administration and Management (BAM)


This research work is focused on causes and consequences of Business Failures in Nigeria. Small businesses create impact in the development of the economy almost large business depends on them in many ways in development and success of small business that study took these preps.

Chapter one is introduced with the general description of the study problem, the purpose of the study, research questions and definitions of terms.

Chapter two deals with the review of recalled literature, it comprises the meaning of business failures. Reasons why business fails, consequences and the effects as well –

chapter three displays the research methodology which comprises of population of study, sampling size, and the method used in determining the sample size, it further discussed the sampling techniques used and the method used in data collection.

Chapter four shows the presentation of data and analysis of data which also include a brief introduction of the chapter respondents, characteristics and classification.

Chapter five contains the summary of findings, conclusion and recommendation of the study.

Table Of Contents

Preliminary Page(s)

  • Title page
  • Approval page
  • Dedication
  • Acknowledgements
  • Abstract
  • Table of content

Chapter One

1.0 Introduction

  • 1.1 Background of the study
  • 1.2 Statement of problem
  • 1.3 purpose of the study
  • 1.4 Research questions
  • 1.5 Research hypothesis
  • 1.6 Significance of the study
  • 1.7 Scope of the study
  • 1.8 Limitations of the study
  • 1.9 Definitions of terms

Chapter Two

2.0 Literature Review

  • 2.1 Conceptual framework
  • 2.2 Theoretical framework
  • 2.3 Other issues related to the variables in the study
  • 2.4 Researchers position

Chapter Three

3.0 Research Methodology

  • 3.1 Introduction
  • 3.2 Research design
  • 3.3 Sources and methods of data collection
  • 3.4 Population and sample size
  • 3.5 Sampling techniques/procedures
  • 3.6 Validity and reliability of measuring instrument
  • 3.7 Method of Date analysis

Chapter Four

4.0 Data Presentation, Analysis and Interpretation of Data

  • 4.1 Introduction
  • 4.2 Presentation of data
  • 4.3 Analysis of data
  • 4.4 Test of research hypothesis
  • 4.5 Interpretation of data results.

Chapter Five

5.0 Summary, Conclusion and Recommendation

  • 5.1 Introduction
  • 5.2 Summary
  • 5.3 Conclusion
  • 5.4 Recommendations
  • Bibliography
  • Appendix
  • Questionnaire

Chapter One

1.0 Introduction

1.1 Background Of The Study

Many businesses have been established but could not survive in the short run while some have come and still exist till date. This research work lays emphasis on these businesses which, have failed to survive in a short run after they have been established as well as those that failed even in the long run.

Business is important to our society because, we depend on it for survival. We make contact with business everyday. Business organizations provide our basic needs such as food, shelter, and clothing. They also provide us with leisure recreation, entertainment, education etc. many of us work in business organizations and therefore depend on them for our economic and social welfare. One can see that our society cannot do without business organizations.

Over the years, studies in management have often concentrated on large organizations which are characterized by impersonal relations, formal structures and personal specialization. The industrial revolution of the early 19th c brought about a radical change in the production process with a focus on achieving economics of scale and resources efficiency and effectiveness through large scale production.

The large scale capital investment involved in large businesses makes this category of business even riskier, hence, the need to place close supervision and control on their management as a way to protect the stakeholder interest.

However studies of modern economics have shown that it is difficult to achieve balance and sustainable economic growth by depending only on large business organization. Small and large businesses are known to contribute significantly in building a solid and rural economic base in both developed and less developed countries.

It has been noted that 75% of businesses, even though there are medium and large scale business which have failed either in the short or long run. In this case one would want to ask what factors that lead to these business failures and what are the consequences, effect of his failure to the company, employees and the society at large.

Small scale businesses provide the training ground for business men. Experience and skills developed in running successful small businesses could be gainful employed in large industrial set-ups. It has to be appreciated that the managerial skill and knowledge needed to run large companies cannot be developed over-night. Those who had experience in small scale business management can easily apply such, knowledge and skill to manage bigger enterprise.

Many small scale businesses are mainly for the demand of their immediate local environments, and that their proprietors are usually conservative and suspicious, unwilling to release information about their businesses for fear of taxation and unwanted competition. Other characteristics of small scale businesses in Nigeria include low level managerial kill by operators, inadequate marketing information and strategies low technical base, strong family tries and mainly owner-finance and managed small scale businesses exist in different forms in Nigeria.

Small scale businesses as one which is owned and controlled by one or few persons, with direct owner influence in decision making, the business has a relatively small share of the market and produces for its immediate environment, requiring relatively low capital outlay and mainly owner-financed small businesses operating in Nigeria could be classified into manufacturing /constructive, farming, trading and service oriented businesses.

Moreover, the aim of the study of entrepreneurship is to run a business over a successful period of time. No one aims to start a business which will be a failure, but as it has been observed, many businesses have failed to survive, thereby disappointing their proprietors although they may have contributed to their failure in one way of the other.

Many businesses fail right from the start as a result of poor planning and inadequate preparation. Others may fail after operating for some time resulting from lack of experienced, managerial skill and environmental constraint. Small businesses provide a very strong support for our economic development. Presently, our economy is dominated by small scale businesses, and even the few existing large businesses heavily depend on them in several ways.

A business start to fail when the entrepreneur fails to achieve objective behind the establishment of the business over a reasonable period of time or when revenue is zero or low that it cannot carry the operating expenses of the business. Businesses can also fail when the major objective behind its establishment (profit) is not achieved.

1.2 Statement Of The Problem

In recognition of the fact that causes business failures in Nigeria are a high priority to the survival of any business concern, the impact is very substantial objectives or goal are the ends towards which activity is aimed. They represent not only the point of planning but also the end towards which organizing, staffing, directing, leading and controlling are aimed.

The rampant closing –up to both small and large business organization in the recent time have stemmed from mis-management by leaders due to inefficiency and lack of focus. It is therefore essential that leaders in business organization are properly trained and educate in order to find the causes and consequences of business failures in selected business enterprise of Owerri, Imo State

1.3 Purpose Of The Study

Despite that many businesses have skilled or still exist over a period of time and due to the fact that many businesses have failed, this research work aims at highlighting the following:

  1. To educate entrepreneurs and individuals in Owerri, Imo State who intend to go into different forms of businesses.
  2. To find out why businesses fail in Owerri, Imo State
  3. To know the reason why some businesses in Owerri Imo State have survived over a long period of time.
  4. To know the consequence of business failures.
  5. To know the effect of business failures to the society

This research work tends to help small businesses in the following areas

  1. Overcome financial difficulties
  2. How to manage risk in business
  3. Guide small businesses on how, when to plan, forecast and carryout effective budget and budgetary control.
  4. Advice small businesses on the need for an effective internal control, through the appointment for an accountant or through audit

1.4 Research Questions

The research questions that relate to the objective of the study take the following forms

  1. What are the symptoms that can show that a business will fail
  2. When can a business be declared insolvent
  3. How does government contribute to business failures
  4. What are the effects or consequences of business failures to the society (Owerri, Imo State)

1.5 Research Hypothesis

  1. Ho: Entrepreneurial skills do not affect business failures
    Hi: Entrepreneurial skills affect business failures
  2. Ho: Government policies do not contribute to business failures
    Hi: Government policies contribute to business failures.

1.6 Significance Of The Study

This study will serve as guide for the upcoming researchers in related field. It will be useful to entrepreneurs of small, medium and large scale businesses, the government and the public who may want to engage in any form of business.

It will enable entrepreneurs of small business to detect signs or symptoms of failures in good time. It will be a constant reference points for researchers a similar study.

Finally, the study emphasize more on business that have failed and highlights the causes and consequences, the effect of business failures in Nigeria.

1.7 Scope Of The Study

This research work covers specifically the causes and consequences of business failures and the possible solution to solving these problems, there is no deviation to that. In order not to disgrace from the focal point. The researcher made use of some selected businesses enterprise in Owerri, Imo State

1.8 Limitations Of The Study

  1. Lack of textbooks, journals, it is known fact that the universities and polytechnic libraries and other public libraries in Nigeria lack much books, journals and other publications which are much needed in project write ups.
  2. Finance: The cost of interest is high and as student was unable to afford all the financial requirement of the research study.
  3. Time: The period of time allowed for this project is small. A project of this nature need to be done gradually, hence months can be over without getting all the necessary facts needed for this study.

1.9 Definition Of Terms

Insolvency (Bankrupt):

Inability of income to cover the expenses of a business

Working Capital:

The actual money used in running the business


Unlawful acquiring and diversion of wealth and income

Operating Costs:

Are the recurrent expenditure of the business and other expenses of the business.

Managerial Specialization:

Acquired qualifications to work as a manager of an enterprise

Economic Downturn:

Is known as economic instability also known as unfavourable economic condition.

Product Lines:

The target of goods and services of business.


Is the total or gross earning of a business (i.e. the turnover).


The planning, controlling, organizing resources (human and materials) by a business organization in order to achieve their business objectives.


The net income of the business it is the excess of gross earning over expenses.

Bad Debt:

A debt that is not collectible and therefore worthless to the creditor. This occurs after all attempts are made to collect on the debt.

Economic Deprecation:

Is a prolonged period of recession or significant and prolonged downturn in the economy. The characteristic of an economic depression include dealing business activities, falling price, rising unemployment, increasing inventories etc.

Chapter Five

5.0 Summary, Conclusion And Recommendation

5.1 Introduction

This chapter summarizes the data collected analyzed. The summary considers the different response from respondents in the issue of business failures. At the end of the summary, there will be conclusion which includes he divergent factor highlights in this research work.

Recommendation will be made based on the problems identified in the course of this work, the recommendations will also aim improving and remedying some issues raised in this work.

5.2 Summary

In the course of this study, the causes, consequences of business failure have been highlighted and by using small business as the base of ones discussion, the research questionnaires administered shows that small business actually failed due to causes stated and discussed in chapter two, which also discussed the meaning of business failure as well as the consequences of business failure and the effect of these consequences.

From the findings, it is quite clear that many small businesses have not been finding it easy. The businesses experienced difficulties from government policies, employees and management. It can also be noted that the immediate consequences to business failure is closure of the business, the effect of this closure lands on the entrepreneur, employee, customers, suppliers and government etc.

5.3 Conclusion

It has been concluded that only a few of numerous small business have succeeded, many failed due to the fact that they lack the technical know how for running a business. In that base the major object behind its establishment is not achieved.

Despite all these factors that militating, the success, there are remedies to them, that when being applied by management the business can stay for a long time that it can make positive impact to the economy.

5.4 Recommendations

These researches offer the following suggestions in order to propagate and maintain the concept of the causes, consequences and effects of business failures.

  1. Efforts should be made to improve employees relationship: It is believed that when there is a cordial relationship between the boss and subordinates, activities of the organization will work out according to expectations.
  2. Government should carryout policies, which will favour small businesses. Because in Nigeria today most large businesses depend on these small business in several ways.
  3. Management of small business should set up an intensive internal control system, which will check financial mis-appropriation and other irregularities that militates the success of business.
  4. Professional advice should be sought regularly, beginning at start up phase and continuing through all stages of business life.

Preparing strategic business plans, is an important step in developing long term view of where the business is going and how it plans to get there.

It is particularly relevant at critical times during small business development phase.

However, entrepreneurs of small business should be ready to take up the necessary actions in order to prevent business failures. Business rarely fail suddenly, failure is gradual which usually involve a downward spiral.

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