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Why Do Small Businesses Fail? | |
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SoHo NEWS & TIPS
Helping You Make the Most of Your Small Office/Home Office
SoHoTIPS.com
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Greetings,
Most small businesses do fail, and why is that? The article
below addresses some of the issues that plague companies
just starting out. Many argue that having $50,000 or
more in start-up capital and being an employer can help
increase your odds. However the most important thing for
a small business is: Be Prepared!
Best,
Mandi
P.S. You can discuss this issue or any other topic in the
new SoHo News & Tips forum. Check it out here...
SoHo News & Tips Forum
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NEWS & TIDBITS
- Oil steady above $59, OPEC talks more cuts. Oil crept above
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- The editor of The Los Angeles Times, who refused to go
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- The New York Stock Exchange on Wednesday said it fined
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- US stocks set to slip after elections, US stock futures
pointed to a drop on Wall Street on Wednesday, with shares
of companies such as Pfizer Inc.
- Federated Department Stores Inc. has reported a $3 Million
quarterly loss and weaker than expected sales. The parent of
Macy's and Bloomingdale's is absorbing the costs of its
acquisition of May Department Stores.
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A Look at Why So Many Small Businesses Fail
By KELLY SPORS
Is there any way you can identify the reasons for the failures
of these start-up businesses?
First, understand that many of the studies cited about start-up
"failure" rates actually pertain to business closures, which
sometimes aren't failures at all. A business may have closed
because its owners retired or sold for a profit.
Much of what is believed about the failures is anecdotal, but
a few studies have tried to better quantify the reasons.
A mid-1990s study by researchers at the University of Texas
and Harvard University tracked 3,377 nonfarm businesses that
filed for bankruptcy in 1994. When interviewed, the largest
percentage of owners, 38.5%, said that "outside business
conditions" such as new competition in their market, led to
the demise of their businesses.
Financial difficulties, including high-debt service and
inability to get financing were cited by 28% as the major cause,
and "inside business conditions" such as a bad location, loss
of major clients, and the inability to collect outstanding
payments were mentioned by 27.1%. Reasons less commonly cited
included tax problems, disputes with creditors, and personal
issues such as divorce and poor health.
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A study of closure data by the Small Business Administration
found that the two factors with the greatest correlation to a
business's chance of survival were having $50,000 or more in
start-up capital and being an employer, which essentially means
hiring outside workers.
Another survey conducted in 2000 in Wisconsin found that small
business counselors and financing experts see businesses fail
most often because of poor cash-flow management, under-
capitalization, failure to write a business plan, and improper
pricing of services.
From the various surveys, the most common problems appear to be
lack of adequate capital and being ill-prepared. Keep in mind,
though, studies about failure tend to have some problems.
For one, outside analysts might come up with very different
reasons for businesses' failures than the owners themselves.
From The Wall Street Journal Online
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DID YOU KNOW?
Subscribe to industry-specific publications and trade groups.
They offer support and research that might not be available
to the general public. Find a Federal Repository, frequently
located a local university, that contains all the latest
government document information. You already paid for the
research with your tax dollars, so you might as well use it.
A listing of documents is also available from the Government
Printing Office.
So what did you think about this issue? Drop me a line and let
me know at mailto:mandi@gophercentral.com
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