Small Business Failures
One of the biggest fears, of both old and new entrepreneurs, is the high failure rate of small businesses. Many ask: Based on the high failure rates of new businesses, how can I be successful? Many fail to start a business due to the high start up costs of a traditional business.
Why do up to 1/3 of small businesses fail in the first two years? What are the small business failure statistics? According to Score.org: • Two-thirds of new employer firms survive at least two years. Nearly half of the private sector workforce is employed by small business. These are the reasons why they fail in the first two years and why most fail to make it 5 years. Many small business failures are due to change as you can see from the list below. Here are the reasons there are small business failures: Inexperience - Simply did not know what they were doing, failed to get a mentor or training. Undercapitalized - They simply did not have enough cash or credit to keep up with their success. May have failed to understand how much cash a business needs. Poor Location - For brick and mortar businesses the old adage of location, location, location is true. The area may have changed and what once was prime selling territory is now a slum. Illness, Death or Divorce - Owner or spouse gets seriously ill, dies or divorces leaving no one to run the business.With a small business this is a common occurrence. Most small businesses do not have a plan for such tragedies Lawsuit - Company not insured or protected against legal challenge(s). Commitment - Ownership was not committed to making the business work, not matter what it took. Overhead - Company took on too big of lease, too many employees, or too much or obsolete inventory. Poor Sales - Never able to make the income needed to make it due to poor sales. In an economic downturn the weaker businesses fail first. Business Plan - Failed to generate a business plan, or failed to consider crucial factors in the plan. Government Regulations or Regulatory Problems - Changes in the law can affect advertising, wages and many areas of a business. Some businesses get in trouble with regulatory agencies. See Are Ethics Important in Business? Insurance - Changes in insurance costs can make it too expensive for a business to keep going. Competition - Either had too much competition, a tough new competitor start up, or the competition did a better job of serving the customers. If a customer has a choice of dealing with an honest, friendly business or one that is not, they will pick the honest one every time. See our article on honesty in the workplace. Business Model - Following an outdated business model or a model that has changed due to technology. Like newspapers in the internet age.
“Don't fight forces, use them.” -- R. Buckminster Fuller Business Success - Sometimes a business grows too fast for the owners to keep it capitalized. Restrictive banking or tight credit, may be part of the problem. Natural Disasters - Hurricanes, Tornadoes, Floods and Earthquakes all leave a trail of victims behind. Many times a business never recovers from a natural disaster. If an entire town is destroyed many times the residents simply move. Loss of Interest - Many small business failures aren’t actual failures. Sometimes an entrepreneur starts a business and then later decides he just doesn’t enjoy that business. New opportunities come along and his old business gets ignored. Therefore, some businesses just die off, due to an owner’s lack of interest. With all the odds stacked against a new business, why does virtually everyone want to be their own boss? To me it is simple. Many of us are tired of seeing our bosses and companies, mistreat customers. We see them fail to make needed improvements in their business. Some of us, just don’t want a boss looking over our shoulders any more. For many of us, the idea of self determination, and controlling our destinies is the reason we start our own business. When you factor in the owners who lose interest in a business, closing it to start another, the statistics of business failures don’t seem so grim. Many a successful entrepreneur will have several businesses that didn’t work out, on the way to discovering their true niche. Small Business Failures are a normal part of a business cycle. If everyone was successful the first time in business, there would not be enough employees to work in all the successful businesses. Trends change. Consumers change their desires. Products and services become obsolete. Newer, better businesses come along. The world is changing and we must change with it. “Nothing endures but change.” -- Heraclitus The biggest reason to be your own boss is simple. Usually the boss makes more money than an employee. The business owner also has tax advantages. that are simply not available to employees. To avoid small business failures a home based business may be the answer for many of us. We have advantages not see in traditional storefront businesses. Advantages of Working From Home: For those considering a work at home business or a work from home business, you can have a big advantage over the traditional business owner. Usually, you have lower startup and operating costs. Home businesses skip building leases, utilities, permits, and financing expenses that traditional business owners face. Many small business failures could be avoided by simply starting a Part Time Work From Home Business. Since you are working at home, you already have utilities hooked up. You do not need to sign a business lease. Now a portion of your home expenses may be deducted as business expenses. Turning a spare room into a business office, may now allow a deduction, on previously unused space. You must know how to keep proper records and know what is deductible. Always consult a qualified tax professional. “A network marketing business can result in tax savings of $3,000 to $9,000 dollars per year.” -- Sandy Botkin, tax expert If you choose to start a network marketing or direct sales business you’ll have the advantage of a low start up cost. Most of these businesses have start up fees ranging from 100 to 1,000 dollars. They usually have a monthly ongoing fees. These are for web sites or product purchases. Fees can range from 20 to 100 dollars a month. You may also want to read our article titled Best Small Business to Start. A home based business may help you avoid asking: Why so many small business failures?
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