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Published On: Thu, Jun 23rd, 2016

Crunching the Numbers: What Percentage of Businesses Really Fail and Why?

Why do some businesses make it, while others fail miserably? If you’re thinking of starting a business, then this is something you’re going to want to know. Here’s how successful business owners made it and what you can learn from them.

Some Stats

First, consider some facts about failing companies. Most companies do not fail right away as long as they have some capital to work with. If you look at the 5 to 10 year survival rates, things look a little bleak, however.

According to the U.S. Census Bureau, 400,000 new businesses are started every year in the U.S. However, 470,000 are going out of business. But, are more businesses failing than are being started? According to John Chambers, Cisco’s 20-year CEO, “More than one-third of businesses today will not survive the next 10 years”.

photo by photoSteve101 via Flickr

photo by photoSteve101 via Flickr

And then there’s a recent Harvard University study done by Shikhar Ghosh, claiming that three out of every four venture-backed firm fails. The U.S. Bureau of Labor Statistics tells us that 50% of all new businesses survive 5 years or more, but that one-third survive 10-years or more. This is an incredible number and implies that the longer a business is run, the more stable it becomes and the higher probability it will survive.

According to the Small Business Administration 66% of small businesses make it their first 2 years, and that only one-third of total businesses fail during the first 2 years. The SBA also reports 50% of businesses fail during the first year. So, while a 50% failure rate is much better than a 90% failure rate, it’s still something to be worried about.

Most business owners who fail end up speaking with their bankruptcy Attorney in Dayton Ohio, looking for a way to repay whatever remains of their debts, or trying to get them erased altogether.

Failure Vs Closure
Sometimes, statistics can be misleading. For example, when a business is listed as “closed,” it does not mean it has failed. It could mean that the business owner closed up shop and retired, moved on to something else, or decided that he wanted to sell the company to his family to pass it on to the next generation.
The business could have undergone a name change, and the business owner could still be operating it, albeit under a new name.

Regardless, don’t believe the hype about the failure rates. They’re pretty bad, but not catastrophically so.

Why Businesses Fail

There are a number of reasons why businesses fail, but they can be broken down into a few major problems:

  • A failure of leadership
  • A lack of good money management
  • A poor marketing strategy
  • A bad product or no market

Financial failures often come as a result of poor money management or a lack of a good marketing strategy. Almost every business owner needs a basic budgeting and money management plan. They also need a savings plan.

Beyond that, they need to have a great marketing plan, positioning in their market, and a good product or service to sell. If they don’t have any of these things, or if they’re seriously lacking in just one, then the entire company could fold.

Guest Author :

Kieran Pope is a financial consultant who has worked with both businesses and individuals to sort out their cash-flow problems and advise on the best course of action for a financially fit future.

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