A study of the principal causes of business failures may be useful in demonstrating the relative importance of the various factors of weakness. The accumulated experience of many years has been shown by Bradstreet's to prove that a large number of failures occur because of deficiencies in the traders themselves, rather than because of happenings beyond their immediate control. In Bradstreet's Journal for January 25, 1912, eight leading causes were grouped under the first heading, while only three were given as existing apart from the individuals themselves. These causes are as follows in the order of their importance:

A

Due to faults of those failing:

1. Lack of capital

2. Incompetence (irrespective of other causes)

4. Fraudulent disposition of property;

5. Inexperience (without other incompetence)

6. Neglect of business (due to doubtful habits)

7. Unwise granting of credits

10. Personal extravagance

11. Speculation (outside of regular business)

B

Not due to faults of those failing:

3. Specific conditions (disaster, prolonged sickness, etc.)

8. Competition

9. Failure of others (of apparently solvent debtors).

In 1912, 30.3 per cent of the number of failures and 80 per cent of the liabilities were due to the shortcomings of those who failed. Bradstreet's gives the following interesting table:

Classified As To Causes

Failures Due to

United States, Per Cent

Canada, Per Cent

Number

Liabilities

Number

Liabilities

1912

1911

1912

1911

1912

1911

1912

1911

Lack of capital

20.7

31.4

33.5

28.3

50.3

49.3

45.8

47.8

Incompetence

30.2

27.0

26.8

23.5

16.3

16.1

22.8

18.9

Specific conditions

16.5

16.9

13.8

20.7

12.8

14.6

8.8

10.1

Fraud

10.3

10.6

8.8

8.9

6.7

8.1

10.3

9.9

Inexperience

4.6

4.1

3.0

2.2

5.1

2.9

3.5

1.5

Neglect

2.0

2.2

1.0

1.3

'4.3

4.1

3.1

2.5

Unwise credits

2.0

2.0

2.6

2.2

1.3

.9

1.7

1.0

Competition

1.9

2.9

1.3

4.8

1.0

.1.1

.6

.6'

Failures of others

1.8

1.3

4.9

4.2

.9

1.1

2.5

1.4

Extravagance

.7

.9

.9

1.2

'.8

.9

.5

3.2

Speculation

.8

.7

3.4

.2.7

.5

.9

.4

3.1.

These percentages afford much interesting and instructive information and point definitely to the more serious ills of commercial life.

It is at once apparent that the most dangerous factor in Canadian business life is the lack of capital, which is responsible for over 50 per cent of the business failures. The lack of liquid capital is one of the most serious difficulties a bank manager has to contend with, and he must ever be on the alert for its appearance. It is a condition which may arise at any time. For instance, a loan made to a customer ostensibly for the creation of liquid assets may be improperly diverted into building, real estate or other fixed assets. Lack of capital, altho the apparent cause of these failures, is not necessarily the primary condition, but may arise or be aggravated by any of the other causes; injudicious buying, for instance, extravagance in living or speculation, may all result in this condition, without showing as an apparent factor in the failure.

Incompetence shows the next largest percentage in Canada and, combined with inexperience, gives a total of 21.4 per cent in number and 26.3 per cent in liabilities. These particular causes assert themselves in various ways: injudicious buying, lack of organization and other unwise business transactions. It must be borne in mind that a man may be most successful in operating a small business, but may prove quite unfit to handle a larger one, on account of lack of business education.

The other causes are self-evident reasons for non-success in business and call for no particular comment. It is not only necessary to keep these causes of failures constantly in mind, but it is advisable also to watch carefully that the presence of these causes in an account of the least importance does not assume larger proportions or induce even more serious conditions.