Why Do Many Small Businesses Fail – With National Small Business Week (celebrated the first week of May) as its backdrop, there are multiple stories about the success people are having in participating in the “gig economy” – a record 55 million people who are freelancing and working remotely, with Technology added that allows for people to start their own company.
When it comes to “Small Business by the Numbers,” produced by BusinessStudent.com, here are some stats worth considering:
Why Do Many Small Businesses Fail
Thankfully, there are steps someone who has a vision for starting and operating a small business can take.
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In its 2018 Small Business Tool Kit, BusinessStudent.com outlined the most common reasons startups fail and how to overcome those obstacles.
The lack of a business plan almost half of all businesses fail because they don’t even meet a business need. For this reason alone, it is imperative that you meet a real need and write a business plan that will answer the question. Some requirements are simple, such as whether a restaurant fulfills the need for a convenient meal, a night out, or even a unique experience.
Consider talking to potential customers or running a test group to determine if there is a market need for your idea.
Start-up money With the average small business costing $80,000 to start, it’s no surprise that nearly a quarter of prospective small business owners simply can’t raise the money they need.
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Check out any government small business loans you may qualify for, using the Small Business Administration’s website is a good start. A chat with your local Chamber of Commerce may also be helpful.
One of the solutions to this is to reach out to your local Chamber of Commerce or even online. Resources are available through BusinessStudent.com to check out free online courses that may be a good start to fill this gap.
Recruiting Challenges Finding the right talent is a constant challenge for small businesses, with 25.7 percent of organizations in the five to nine employee range citing it as a major issue.
A strategy that includes presenting elements of the business plan mentioned earlier is one idea experts offer as a way to recruit.
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Keeping Employees Happy Once a small business owner has assembled the team, keeping them happy is the next order of business.
Essentially what experts advise is to trust your employees to run the business the same way you trust yourself.
And then there is the question of pay. While going “above and beyond” when it comes to salary, health care packages and retirement benefits may feel like it hurts the bottom line, it will keep your best people happy and boost morale. If you have a new idea or invention, and you are ready to open your start-up business, do not think that the idea or product is enough because there are several reasons why. Startups fail:
To be successful you need to have a business plan that includes every aspect of how you will run your operation. Another essential element is research; You will have to do a lot of it before spending money.
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Furthermore, you should not assume that you will receive financing other than the money you start with from yourself, family and friends. Only a tiny percentage of startups receive venture capital (VC) funding.
The most important aspect, however, is the team. Don’t think you can do it alone. Nevertheless, you have to select your team members carefully and add as much diversity as possible.
To have significant success as a startup, you will have to master all the do’s and don’ts. Also, a startup is a seven-day-a-week profession. Don’t assume you’re leaving a 9-to-five job for the smooth and flexible life of being your own boss.
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Research summary. When you start a small business, your first thought is not how quickly you can fail. However, it is an important statistic to be aware of when starting any new venture. Understanding how and why businesses typically fail can save you from common mistakes that will help your business thrive. According to statistics:
When you start a business, you are in it for a long time. However, the first few years of any small business are critical. It’s important to understand failure rates in the first few years of business to ensure you cover all your bases to stay afloat.
Now that we understand the business failure rate, we should understand how many small businesses it affects. The small business market can feel incredibly saturated, but considering how many different industries and markets businesses can reach, the numbers may surprise you.
Now that we know the numbers behind the small business market, it’s also important to understand why these businesses ultimately fail.
How Long Do Most Small Businesses Last?
Although all small businesses run into common issues, there are differences based on your product, service, market and industry. Consider the following:
Your location can also matter when developing your own small business. States rank differently on their survival and failure rates. The statistics below demonstrate exactly how different businesses perform based on their location.
Starting your own business can bring a lot of uncertainty. One thing is certain; You will want to do everything you can to ensure your success as a business.
Opening a small business is a risk in itself, but the numbers are not as scary as many make them out to be. Having all the facts in front of you can help you make an educated decision about how you want to grow your business.
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When you look at the big picture, the main takeaway is that running your own business is hard. There are many reasons why small businesses fail, but keeping an eye on your finances and cash flow is statistically the most important thing you can pay attention to. This is often the final nail in the coffin for many small businesses forced to close their doors.
Regardless, there are many opportunities and innovations to be made on the market. The strengths of small businesses in the United States are demonstrated by growing statistics every year.
Caitlin Mazur is a freelance writer at . Caitlin is passionate about helping readers land the jobs of their dreams by offering content that discusses job-search advice based on experience and extensive research. Caitlin has a degree in English from Saint Joseph’s University in Philadelphia, PA. Data from the Small Business Administration show that an average of 80% of self-employed businesses survive the first year, 70% survive at least two years, 50% survive at least five years, 30% survive at least ten years, and 25 % survive at least fifteen years.
This is a much better survival rate than the oft-cited myth that 50% of businesses fail in their first year. They don’t. However, starting a business and going the distance is obviously quite difficult and success is far from guaranteed.
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Small business failure is a little trickier because “failure” as defined by the statistics is simply the business no longer existing – anything else will be self-reported by the founder, and this is not always reliable.
CB Insights research based on over 100 startup post-mortems found the reasons listed most often why the founder thought the business failed:
Product/market fit is the number one new business killer. Achieving product/market fit typically means creating a product that is faster, cheaper, or easier to use than competing products or creating a product that serves a poorly served segment of customers.
For example, Partake Foods was founded by a mother who wanted to find snacks for her daughter, who is allergic to gluten. Partake now offers gluten-free, vegan and non-GMO cookies – a differentiating factor that has helped them stand out in the crowded snacks vertical.
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The other market factor to consider is whether a product category is growing or slowly declining. In general, there are four types of good product categories based on what trajectory they are on:
Outside of poor sales, the main reason businesses run out of money is due to bad forecasting. Forecasting is the process of predicting future sales and expenses based on historical data. If you don’t have any historical data, you can still base forecasts on expectations and quickly update your forecasts when you get actual data.
Forecasting may not be the most glamorous job, but it is essential to the health of any business and much easier to control than your direct sales.
Starting a business requires a certain level of bravery – as the founder, you will wear many hats. But any founder who works with a co-founder, early contractors, or early employees knows that business really does become a team sport. The primary reasons teams don’t work out are (a) a poor mismatch and overlap of skills and
What Percentage Of Small Businesses Fail?
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