Major Causes of business failure in Nigeria

11 Major Causes Of Business Failure In Nigeria

It has been said that nine out of every ten newly opened business fail within three years of their operation. But what really could be the major causes of business failure in Nigeria?

Indeed, the Nigerian government are to be blamed to an extent because they have failed in ensuring the development and sustainability of businesses in the nation through providing of amenities such as good roads for transportation of goods, and stable electricity supply.

But then we are not writing this article to lambaste the government.

In this article, we are simply trying to look at other factors asides the government which we think might be the major causes of business failures in Nigeria and perhaps, proffer some possible solutions.

Here are a few of the main reasons why businesses fail in their early years. 

11 Major Causes Of Business Failure In Nigeria


1. Starting with the wrong reason

The truth remains that many of these failed businesses were created for the wrong reason . Let’s look at an example that is very likely to happen in reality. An electrician who works for a construction company decides that he no longer wants to answer to anyone and that he could do better by working on his own.

And then, he decides to quit his job and become an entrepreneur, but this person may not have realized that although he has the skills to do a good job in the field of electricity, he may however lack the skill needed to run a successful business. Over time, his initial enthusiasm will diminish and he may end up closing down his business and return to work for the same or another entrepreneur.

Unlike the electrician, if we create a business for the right reasons we will have many more chances of success . For example, your first objective when starting a new business should be to solve people’s problems. The money will follow later.

2. Not having the necessary capital

Creating a company without sufficient capital is one of the major causes of business failure in Nigeria. Many owners of new businesses underestimate the importance of cashflow.

Before we start any business, it is important to be aware that we may not make any profit during the first few months of our operation and that the expenses to be incurred will come from our external funds.

Companies usually need a year or two to reach their break-even point, in which case it is necessary to estimate the expenses until such time. But when we fail to plan these things, and the business isn’t pumping in the money as expected, some business owners may be forced to take on expensive loans just to survive and try to push the business forward.

We must take into account the amount of money that we will need to start a business. And think about the following three aspects:

  • The initial investment required by the business. Here you will have to include opening costs of the premises, purchase of merchandise, bonds, licenses and procedures, expenses of incorporation of company, etc.
  • The main current expenses that your business needs during the first year (or two). Rentals, salaries, electricity bills, telephone, water, insurance, etc.
  • Interest generated by the obtained financing.

ALSO READ: 4 special ways to raise capital for your business in Nigeria

3. Wrong planning

Lack of planning is yet one of the major causes of business failure in Nigeria. On many occasions, we entrepreneurs are so focused on achieving our dream that we forget the importance of preparing a detailed Business Plan .

In it you should include questions such as the analysis of the competition, forecasts of income and expenses, budget and marketing strategy.

4. Lack of leadership and direction

Having sufficient leadership and entrepreneurial skills is critical to the success of any business. In fact, the lack of them can lead to confusion and conflict within the company, undermine the morale of workers and reduce productivity.

Like all skills, these can also be learned. Be sure to strengthen those areas which you know you have more weaknesses.

You can check out this article to know those characteristics/skills you need as entrepreneur to run a successful business.

5. Uncontrolled expansion

Sometimes, a business die due to the owner’s extreme hunger for more success.  And this is not something that happens on a few occasions, but rather more often than we imagine. The owner perhaps feeling that his business has grown beyond his expectations, decides to prematurely expand his business without control.

To make sure this does not happen to you, expand only after carefully reviewing each detail.

Do you want to internationalize? Analyze the new market, study the consumers, the possible competitors that you will have, if the country/city has the specialized labor that you will need, the facilities you will require and their respective prices, etc.

And please do not rush. The slow but firm steps always win the race in any business.

6. Failures in advertising

Many companies fail because they do not advertise. This error is the consequence of a kind of mentality: “Good products sell themselves”. This is very far from reality. If nobody knows you, how will they come to you? To reach the costumers easily, you have to make them know you exist; you have to advertise! 

7. Terrible customer service

This certainly is one of the major causes of business failure in Nigeria.

As we already know, customers are the backbone of any business. If inadequate attention is given to them, how do you expect them to return?

The attention that should be given to these customers should be respectful, cordial and professional because only then will they be satisfied with the products and services we offer, and will want to return to our establishments and thus in that way, we will achieve their loyalty.

You can check out Neil Patel’s guide on how to treat your customers 

8. Inability to delegate

Many owners of new businesses make the mistake of wanting to do everything by themselves and avoid delegating activities to members of their team. And this right here is precisely one of the major causes of business failure in Nigeria.

Some business owners fail to delegate because they believe that nobody will do things better than them or that if you want something to be done, you have to take care of it yourself. The most common problem with this is that this attitude leads to extreme tiredness and even disappointment if things do not go as expected after a prolonged effort.

The solution: learn to delegate. Hire others , experts in your fields, while you focus on tasks that contribute to the growth of the company, such as preparing others for leadership positions.

9. Unprofitable business model

Just because you have a business idea that you’re excited about does not mean it’s a good idea. This is where it is important to have a good business plan and do a thorough market research .

Looking for external advice can also be a good idea.
It is good that you ask yourself questions like: Is there a customer base for this product or service? How long will it take to bring the business to market and at what cost?



10. Underestimating the competition

Even if you have a solid business plan, a lot of funds to start with, the freedom and management skills necessary to succeed, you still have to overcome a huge challenge: competition. Underestimating your competitors is certainly one of the major causes of business failure in Nigeria.

To increase the probability of success, perform a market analysis with emphasis on the competition. Evaluate your strengths and weaknesses and learn from it, implement improvements to achieve a competitive advantage.

11. Mismanagement of finances

Sometimes businesses fail to survive because they get too much debt beyond their financial capacity.

Mismanagement refers to problems such as: the mix of the owners’ personal expenses with the company’s expenses, the lack of anti-fraud controls, the non-compliance of accounts receivable processes, amongst others.

Remember: one of the essential prerequisites for the success of any business is the correct handling of money, which not only consists of keeping accounts well, but also in the type of decisions that are made regarding the finances of your company.



Having listed the major causes of business failure in Nigeria, we hope you strive to avoid them in order to create a profitable and long lasting business.

. If you found this article helpful, then you may want checkout the Fears you need to overcome to start a business in Nigeria

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