"The No. 1 reason people fail is, they run out of money," said David Goldin, CEO and president of AmeriMerchant, a provider of merchant cash advances.
Research bears him out. The 2013 Global Entrepreneurship Monitor report, produced by Babson College and other universities, found that the top reasons for discontinuing a business in the U.S. were problems obtaining financing and lack of profitability—problems that plagued more than half of businesses that shut their doors. Only a few economies had more exits triggered by these problems: Japan, Korea, Greece, Portugal, Ireland and Spain.
Of course, it's not just failure to raise money that can lead a business to fizzle. Many high-revenue businesses suffer from poor cash flow. They can't make payroll or keep the lights on because there's a big gap between when they finish their projects and when they get paid—sometimes due to simple problems, like failing to invoice promptly.
It's not a rookie mistake: About 37 percent of experienced business owners sometimes fall short of the cash they need to cover business expenses, according to an annual report by the Corporation for Enterprise Development, a nonprofit based in Washington, D.C., that is focused on helping low- and moderate-income households grow and hold on to their assets. The businesses surveyed had revenues from $49,000 to more than $1 million annually.