Why Do New Businesses Fail

Why Do New Businesses Fail – I was recently on a podcast where I was asked the old business question – why do most businesses fail?

No one starts a business to fail. You will start a business for some freedom, to get away from 9-5, to be financially free. And even if you don’t go into business to fail, 8 out of 10 businesses don’t succeed.

Why Do New Businesses Fail

Most business owners start their business because they love what they do. They are passionate about a service, product or trade and decide to create a business. Being good at what you do is not enough. You must have some business acumen to succeed. You need to understand how the business works, which means you need to learn some new skills. Being good at what you do means you will be able to do your job, but running a business is completely different.

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Ben Fewtrell is a Business Coach, Keynote Speaker and trainer who has been featured in Virgin Inflight Magazine and Entertainment Portal, SKY Business and “Business Coaches Most Opened Secrets”. He also hosts the popular Business Brain Food Podcast where he interviews leading experts on anything and everything business.

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Any company owner, small or big fears hiring the wrong person for the job. Hiring with no experience or no easy answers to the question of success and failure in small business. Different view points all over the map.

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Ask the average person what their business goals are or how they define a successful business, and the most likely response is “a profitable one.” A more sophisticated response might go beyond “those who earn income that they can earn now and in the future.” Ask anyone in the finance department of a public company, and the answer will be “those that maximize shareholder wealth.” Management guru Peter Drucker said that for a business to succeed, it must create customers, while W. E. Deming, a quality guru, advocated that business success requires “delighting” customers. No one can argue, specifically, with this definition of small business success. , but they missed an important element of the definition of success for small business owners:

Many people have learned that there is a significant difference between a small business owner and an entrepreneur. Some entrepreneurs put more emphasis on growth in the definition of success. William Dunkelberg and A. C. Cooper. “Entrepreneurial Typologies: An Empirical Study,” Frontiers of Entrepreneurial Research, ed. K. H. Vesper (Wellesley, MA: Babson College, Center for Entrepreneurial Studies, 1982), 1–15. However, entrepreneurs and small business owners clearly define much of their personal and company success in the context of giving them freedom. For many small business owners, responsibility for one’s own life is a key motivator: “a sense of fiercely guarded freedom,” and money is seen as a valuable commodity. “Report to the Commission or Inquiry into Small Companies,” Bolton Report, vol. 339 (London: HMSO, February 1973), 156–73.

Graham Beaver, Business, Entrepreneurship and Enterprise Development (Englewood Cliffs, NJ: Prentice Hall, 2002), 33. Often, financial performance is seen as an important measure of success. However, small businesses are reluctant to report financial information, so this will be an imperfect and incomplete measure of success. Management 37, no 4 (1999): 16.

. There is a wide range of values, from 90 percent to 1 percent, with various values ​​in between. Roger Dickinson, “Business Failure Rates,” American Journal of Small Business 6, no. 2 (1981): 17–25. Clearly, there is a problem with the results, or a factor is missing. One of the factors that would explain this difference is the different definition of the term

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Can have multiple meanings.A. B. Cochran, “Small Business Failure Rates: A Review of the Literature,” Journal of Small Business Management 19, no. 4, (1981): 50–59. Small business failure A general term that covers several types of failure: (1) discontinuance, (2) opportunity cost failure, (3) prevention of loss to creditors, (4) loss to creditors, and (5) bankruptcy. it is usually measured by ceasing the company’s operations, but it can be done by a number of things:

Failure can be thought of as the result of a cascading series (see Figure 1.1 “Types of Business Failure”). There are even times when small business owners who file for bankruptcy consider the company a successful bankruptcy.Don Bradley and Chris Cowdery, “Small Business: Causes of Bankruptcy,” July 26, 2004, accessed October 7, 2011, www.sbaer. uca.edu/research/asbe/2004_fall/16.pdf. Then there is the complication of considering the small business industry when analyzing failure and bankruptcy. Failure rates can vary in different industries; in the fourth quarter of 2009, the failure rate for service companies was half that of transportation companies. “Equifax Study Shows Ups and Downs in Commercial Credit Trends,” Equifax, 2010, accessed October 7, 2011, www.equifax.com/PR/pdfs/CommercialFactSheetFN3810.pdf.

A second issue related to small business failure is the consideration of the time horizon. Again, there are different views. The Dan River Small Business Development Center presents data showing that 95 percent of small businesses fail within five years Don Bradley and Chris Cowdery, “Small Businesses: Causes of Bankruptcy,” July 26, 2004, accessed October 7, 2011, www. . sbaer.uca.edu/research/asbe/2004_fall/16.pdf. Dun and Bradstreet report that companies with fewer than twenty employees have only a 37 percent chance of surviving four years, but only 10 percent of bankruptcy Don Bradley and Chris Cowdery, “Small Business: Causes of Bankruptcy,” July 26, 2004, accessed October 7, 2011, www.sbaer.uca.edu/research/asbe/2004_fall/16.pdf. The US Bureau of Labor Statistics shows that 66 percent of new companies survive within two years, and that number drops to 44 percent two years later. Anita Campbell, “Business Failure Rates Is Highest in First Two Years,” Small Business Trends, July 7, 2005, accessed October 7, 2011, smallbiztrends.com/2005/07/business-failure-rates-highest-in .html. It seems that the longer you live, the higher your chances of survival. This makes sense, but does not guarantee it. Any business can fail after years of success.

There is no more fascinating problem or better study in the world of small businesses than what causes them to fail. Given the critical role of small businesses in the U.S. economy, the economic consequences of failure can be significant. However, there is no definitive answer to this question.

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Three categories of causes of failure have been identified: lack of management, lack of finance, and external factors. The first reason, lack of management. The failure of the company is based on the limitations of the owner, such as lack of business skills or lack of behavioral skills. , is the most frequently cited cause of company failure.T. C. Carbone, “Small Business Management Challenges,” World Management 9, no. 10 (1980): 36. Unfortunately, this is the same explanation as explaining that all plane crashes are due to pilot failure. More than thirty years ago, it was observed that “while everyone agrees that bad management is the main cause of failure, no one agrees on what ‘bad management’ means or how to identify when a company is collapsing – then everyone agrees that “John Argenti , Corporate Collapse: The Causes and Symptoms (New York: McGraw-Hill, 1976), 45. This observation remains true today.

The second most common explanation cites lack of finances. Company failure is based on financial problems, such as lack of initial funding, inadequate financial controls, poor cash flow management, and inability to raise additional capital. , or lack of financial strength in the company. A third explanation focuses on environmental or external factors. , such as a significant economic downturn.

Because it is important for small businesses to succeed, not fail, each factor will be discussed in detail. However, these factors are not separate independent elements. A declining economy will reduce a company’s sales, which affects the company’s cash flow. The owner does not have the knowledge and experience to manage this money

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