Failure of a Business in South Africa (2025): Reasons, Data, and How to Prevent It

Last updated: 10 October 2025

The question of why businesses fail is challenging to answer. The failure of a business in the South African context is a topic that has been discussed and debated for years.

Even profitable firms collapse when cash flow timing and working capital are mismanaged—three in five failures occur despite reported profits. Treat cash flow as the primary survival metric, not accounting profit.

As early as 2007, the Small Enterprise Development Agency, a subsidiary of the Department of Trade and Industry in South Africa, reported that South Africa had one of the highest new-SME failure rates in the world, estimated at ~75%.

Empirical SA studies highlight internal capability gaps: management capacity, financial skills, and access to appropriate finance. External factors—regulation, market access, and weak networks—compound risks. The fix is structured planning, credible financial models, sector-specific research, and mentorship. 

Failure of a Business in South Africa: Are We Talking About This Enough?

A considerable number of prospective entrepreneurs have a slanted impression of entrepreneurship. In most cases, these individuals want to pursue entrepreneurship for all the wrong reasons, with little commitment to hard work, but rather an attitude of “It is my right”.

This is evident from my personal experience managing a Startup Coaching and Business Plan Consultancy in South Africa since 2006.

Read More in the article Startup Mistakes to Avoid ― Here’s our Top 10.

What are the Major Causes of Business Failure? The South African Small Business Crisis in Numbers

• Over 75% of South African small businesses fail or go under within their first few years, according to one estimate from 2024 (Why New Businesses Fail). (Source: SABC News).
• The Absa / SACCI / BMR Small Business Growth Index (2025 H1) reports 52.8 % of small firms say they are contracting, trading with difficulty, or at risk of closure. (Source: BMR).
• 43.7% of surveyed businesses reported a decline in profits over the past six months.
• More than half of business owners cited rising input costs, load shedding, and supply chain disruption as major pressures (Source: BMR).
• SA’s SMME failure rate is among the highest globally, with estimates that 70–80% of SMMEs fail within 5 years (Small Business Failure Rate in South Africa). (Source: IOL).
• In SA, only 1% of microenterprises (with <5 employees) eventually grow to employ 10 or more. (Source: University of the Western Cape).
• Approximately 40% of a micro-enterprise’s success is tied to the entrepreneur’s personal initiative (proactivity, planning, persistence). (Source: University of the Western Cape).
• A Stellenbosch/BizCommunity study found that a lack of management capacity and financial skills was one of the top 5 reasons entrepreneurs fail. (Source: Bizcommunity).
• In many cases, businesses that are technically profitable collapse—they run out of cash due to timing issues. According to News24, the No. 1 cause of startup failure in SA is cash flow insolvency.
• In SA, load shedding is often cited as a systemic threat: 44% of small businesses say revenue dropped during outages; 20% say they may reduce staff or shut down. The cost impact of load shedding is non-trivial: millions of dollars in lost revenue daily for businesses forced offline.
• Regulatory complexity and red tape are often cited by SA entrepreneurs as a barrier to survival.
• SA SMMEs underutilise support resources (incubators, trade bodies). Many owners feel insufficiently supported or networked.
• Research on SA SME failure shows that each failure is unique, but the consistent negative dimensions are entrepreneur capacity, enterprise competitiveness, and environmental conduciveness (market and regulatory conditions).
• Globally, by contrast, first-year failure rates hover around 20%, highlighting how extreme SA’s business risk environment is. 

These numbers show that it’s not enough to have a vision — survival in South Africa requires a strategy calibrated to local reality.

5 Reasons Why Entrepreneurs Fail (Especially in South Africa)

Failure of a Business: Reason #1 ― Lack of basic skills and being in it for the wrong reasons will lead to the Failure of a Business.

It is argued that many prospective entrepreneurs want to start a new business to get rich quickly, with little to no focus on acquiring the essential business skills needed for long-term success and sustainability. From personal experience, many prospective entrepreneurs are unwilling to do the necessary foundation research and exploratory market analysis to build a solid business case.

Explore our article Successful Business Planning for Startups ― 9 Must-Do Steps

They would rather task an external consultant with all the work on their behalf, with little involvement in business model refinement, strategic planning, market research, and basic financial management.

Ravi Govender, head of small enterprises at Standard Bank, argues that although statistics vary, on average, about 50% of all startup businesses in South Africa fail within 24 months due to the inability and inexperience of their owners. He further cites that one of the main reasons for the premature failure of small businesses in South Africa is that they are started as survivalist ventures.

It is almost inevitable that they will fail because their owners do not have the skills, experience, or resources to build a sustainable business. A lack of management experience and training leaves new entrepreneurs unable to handle their business responsibilities fully.

Failure of a Business: Reason #2 ― Lack of an adequate market will lead to the Failure of a Business.

Prospective entrepreneurs pay very little attention to their market and potential customers. As indicated earlier, very few individuals are willing to do the necessary groundwork to support their business idea with solid facts and industry research. This results in prospective entrepreneurs realising, often too late, that the market is either too small for adequate and consistent income or they try to be too much for too many, with the business losing focus.

Failure of a Business: Reason #3 ― A poor business plan will lead to the Failure of a Business.

Many prospective entrepreneurs lack formal business training and ignore the vital stage of developing a business plan. As a result, they do not have a realistic grasp of the industry, market, external environment, costs, responsibilities and medium- to long-term business requirements. In South Africa, like in most other countries, any investor ― whether it is a government funding institution, a private financial institution, a commercial bank or a private investor ― will require a business plan to be presented to them as an integral part of the funding application; a succinct proposal that will provide adequate proof and factual justification of the potential sustainability of the business venture.

Unfortunately, most prospective entrepreneurs have little to no knowledge of how to prepare a viable business plan that will meet the stringent criteria of the South African investment community. Moreover, even if they subcontract the compilation of the business plan to an external consultant, most individuals are unwilling to participate in the consultative process of writing a concrete business plan that will provide a factual blueprint of the business idea and potential market opportunity that they wish to exploit.

From personal experience, these individuals have an attitude of “I need the business plan to apply for funding; no more, no less”. Unfortunately, in not participating in the overall business plan writing process, prospective entrepreneurs find it extremely difficult to present their business idea to investors; “If I have a business plan, I will successfully secure funding” rings very true in South Africa.

Unfortunately, prospective entrepreneurs who display this attitude often fail to secure the funding they need. The business plan in itself is not enough to ensure success. Other factors, such as entrepreneurial aptitude, a prospective entrepreneur’s financial situation, and the ability to adequately present their business case, carry tremendous weight when presenting to potential investors.

Failure of a Business: Reason #4 ― Lack of financial literacy and poor money management will lead to the Failure of a Business.

The South African landscape lends itself to many individuals with limited education and training in basic financial literacy. These individuals form part of the pool of prospective entrepreneurs. Without basic financial literacy and adequate business knowledge, an entrepreneur might not distinguish profit from cash in the bank. They start living lavish lives and realise too late that there is no money to pay funders, investors, suppliers, employees, and creditors. The low level of savings among South African households underpins the notion that prospective entrepreneurs do not reinvest profits into their businesses but rather live from month to month.

The most important financing evaluation criteria were the SMEs’ financial status or ability to repay the loan (cash flow) and their financial contribution to the investment/funding deal (cash and/or collateral). In addition, financial institutions require solid financial records and statements, a winning sales pitch, sound business plans (that SMEs understand) and expert knowledge. Age and educational qualifications are less important for financial institutions, which are also tolerant of issues that can be addressed, such as FICA compliance, proper paperwork submissions, and accurate costing and pricing.

Countless prospective entrepreneurs do not understand a business’s financial requirements and obligations, including tax obligations, financial costing, pricing strategies, financial control and VAT. Furthermore, many prospective entrepreneurs use the company account as a personal account and fail to split the two, so the company account is managed as a separate entity. This results in a misunderstanding of the business’s ‘true’ expenses, income and profitability.

Failure of a Business: Reason #5 ― The inability to secure funding will lead to the Failure of a Business.

Most experts would agree that the most significant challenge facing entrepreneurs in South Africa is the difficulty — and, in most cases, the inability — to secure funding for new start-up business ventures. Finance institutions and investors must interrogate new business ideas they’re requested to fund methodically; the focus should be on trying to understand how committed and resilient the prospective entrepreneurs are, how sound the business model is, and what the possibility is of business failure, taking various tangible, intangible and potential risks into consideration. The adage that it is harder to find customers than capital, as capital flows to commercial success, has never been more accurate.

Financial institutions have specific criteria that prospective entrepreneurs must meet. Commercial banks have little to no room to take on risk, especially those inherent risks associated with start-up business ventures. Moreover, these banks would normally require a startup company to contribute up to 75% of its funds towards securing the loan, and in most cases, a high level of asset-backed security may also be required. Government institutions may be more lenient and sometimes offer preferential interest rates and loan repayment terms. Still, other criteria, such as focusing on only funding Black-Owned Enterprises and specific high-growth industries such as Renewable Energy and Manufacturing, limit the number of potential start-up entrepreneur applicants.

Business Failure Reasons: How JTB Consulting’s Planning Methodology Mitigates SA Risks

When we work with SMEs and nascent firms in South Africa, we incorporate these risk factors into scenario modelling:

• Multiple base cases under different load shedding intensities
• Interest rate sensitivity on debt servicing
• Payment terms stress tests (e.g. clients pay at +60 days)
• Supply chain delay buffers
• Worst-case margin erosion is built into contingency buffers

Because of these built-in mitigations, JTB clients’ business plans often handle realistic stress conditions, not just optimistic projections.

Why Businesses Fail in South Africa FAQs

South Africa has one of the highest small-business failure rates globally, with about 70% to 80% of startups closing within 5 years. This FAQ section explores the key reasons for business failure and practical solutions based on JTB Consulting’s research and experience. Understanding the key causes of business failure and how to prevent it in South Africa will help entrepreneurs build resilient, sustainable enterprises in this challenging economic environment.

What are the main reasons small businesses fail in South Africa?

Small business failure in South Africa is often due to poor planning, limited financial capacity, weak cash flow control, restricted access to finance, insufficient sector knowledge, and weak networks. Many founders neglect rigorous business plans and financial models, resulting in pricing errors and unrealistic sales forecasts. The top killer is cash-flow timing, not profit. Building financial capability, validating market demand, and modelling working capital before launch are critical to preventing business failure.

Why do profitable businesses still fail?

Many profitable businesses fail because they run out of cash. In South Africa, 60% of business failures occur despite reported profits, as cash inflows lag behind receivables, inventory, or debt obligations. To prevent business failure, tools such as rolling 13-week cash flow forecasts, disciplined credit terms, and scenario planning are essential to maintaining liquidity and solvency.

What is South Africa’s small business failure rate?

South Africa’s small business failure rate is among the highest globally, with up to 80% failing within five years. Variation exists across methodologies, but research consistently shows that early-stage vulnerability exists. Addressing the reasons for business failure requires a focus on capability building, financial literacy, and ongoing, structured support rather than one-time interventions.

Which causes are controllable by founders?

Founders can control many business failure reasons, such as plan quality, financial literacy, pricing, cost control, hiring, sales discipline, supplier terms, and cash-flow monitoring. However, external shocks worsen outcomes if controls are weak. Successful founders implement monthly operating reviews with KPIs and dashboards, along with ongoing owner training, to safeguard their businesses.

How does a professional business plan reduce failure risk?

A professional business plan reduces failure risk by enforcing evidence-based assumptions, validating customer demand, and quantifying cash-flow and working capital needs. Investors and lenders rely on this discipline. JTB Consulting’s plans feature sector research and five-year financial models with sensitivity analysis, aligning business decisions with realistic risk assessments.

Does training and mentorship really help survival rates?

Yes, training and mentorship significantly improve survival rates. University-linked programs that build personal initiative and provide structured support, combined with rigorous planning and market access, raise the odds of sustainable success. These programs address key reasons for business failure by enhancing capability and resilience.

What is JTB Consulting’s funding success rate?

From 2014 to 2024, JTB Consulting clients achieved funding approval rates between 75% and 81%, averaging about 80%. This far exceeds the industry average approval rate of below 10%. Our track record includes supporting startups and established businesses in South Africa and internationally, helping them stay ahead of typical business failure rates.

Why do new businesses fail in the first year or five years?

New businesses often fail in the first year due to cash-flow problems and poor product-market fit. Between years two and five, scaling challenges like hiring, capacity constraints, compliance issues, and debt management contribute to failure. Preventing failure involves staged growth, securing favourable supplier terms, and maintaining an up-to-date financial model.

What practical steps prevent failure in South Africa?

Prevent business failure in South Africa by developing a bank-ready business plan and a rolling 13-week cash-flow forecast. Validate customers, secure supplier terms, formalise collections, and engage with networks or accelerators. JTB offers feasibility assessments and finance-readiness support to help entrepreneurs operationalise these critical steps effectively.

How can JTB Consulting help a struggling small business now?

JTB Consulting provides rapid diagnostics to evaluate pricing, unit economics, and cash conversion cycles. We rebuild financial models, refine go-to-market strategies for validated niches, and supply a 90-day stabilisation plan. Clients benefit from lender-friendly reporting and weekly cash-flow reviews designed to improve performance and avoid common business failure reasons.

Stop avoidable business failure.

Partner with JTB Consulting for bank-ready business plans, feasibility studies, and cash-flow models that lenders trust.

Get a Proposal • Business Plan Services • Financial Models

South Africa’s small business failure rate is alarmingly high, with many enterprises succumbing within their first few years. Understanding the reasons why businesses fail in South Africa is crucial to breaking this cycle and building sustainable enterprises. The failure of a business often stems from common business failure reasons such as poor financial management, inadequate skills, insufficient market research, and lack of access to capital. Entrepreneurs must recognise these 5 reasons why entrepreneurs fail to prepare better and avoid falling into the same traps.

To effectively prevent business failure in South Africa, founders must focus on developing solid business plans, maintaining disciplined cash-flow control, and continuously updating their financial models. The reasons why businesses fail in South Africa often revolve around neglecting these core business fundamentals. Addressing these will significantly improve survival chances and reduce the high small business failure rate in South Africa.

Moreover, understanding why new businesses fail can help entrepreneurs anticipate and address challenges early. Common failure points include weak product-market fit, poor cash-flow timing, and operational inefficiencies that exacerbate risks. For businesses to thrive, it’s essential to employ strategic financial planning, secure adequate funding, and adopt a proactive approach to managing growth and compliance.

Finally, the major causes of business failure highlight the urgent need for targeted support programs, training, and mentorship. By focusing on the root causes behind business failure, entrepreneurs can leverage expert advice, such as that provided by JTB Consulting, to outsmart the common pitfalls and build resilient companies. Addressing the small business failure rate in South Africa is key to economic growth and job creation, making it a collective priority.

In summary, the failure of a business in South Africa is often preventable by understanding the reasons why businesses fail, recognising the small business failure rate South Africa faces, and applying proven strategies to prevent business failure in South Africa. Entrepreneurs who proactively manage these challenges will be better positioned to succeed in a competitive and evolving market landscape.

A Call: Prevent Business Failure in South Africa ― JTB Consulting’s 15 Actionable Steps

Here are 15 actionable steps South African startups and existing businesses can take to minimise and prevent business failure, naturally incorporating the requested keywords:

• Develop a comprehensive business plan to address common reasons why businesses fail in South Africa.
• Monitor and manage cash flow rigorously to combat South Africa’s high small business failure rate.
• Build strong financial literacy skills to prevent business failure South Africa faces.
• Thoroughly validate market demand before launching products or services.
• Secure, stable, and accessible financing options to reduce primary causes of business failure.
• Regularly update financial models to predict and mitigate risks tied to business failure reasons.
• Maintain disciplined pricing and cost control processes to avoid slipping into failure.
• Invest in ongoing training and mentorship to strengthen skills and prevent business failure South Africa.
• Establish reliable supplier and customer terms to improve cash flow and prevent failure.
• Implement KPI dashboards and monthly reviews to catch failure signals early.
• Prioritise networking and accelerator programs that address the reasons why businesses fail in South Africa.
• Plan growth in stages to avoid scaling issues contributing to the small business failure rate South Africa experiences.
• Promote strong sales discipline and hiring processes to bolster operational stability.
• Use scenario planning and rolling cash-flow forecasts to foresee challenges and prevent business failure South Africa.
• Engage specialists like JTB Consulting for diagnostics and financial restructuring to overcome threats related to the failure of a business.

These steps are essential to minimise risks and address the core reasons why businesses fail in South Africa, helping entrepreneurs reduce the high small business failure rate South Africa consistently faces and proactively prevent business failure across South Africa.