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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


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!


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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A Look at Why So Many Small Businesses Fail 

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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They offer support and research that might not be available 
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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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