|
Understanding why small businesses fail within the first five years is something you, as a small business owner must take note of. If you are a business owner, and are investing in some new venture, learning why others fail can help you to actually improve your chances of success. The Small Business Administration says that you have a 50% chance of success in your business. Do you have what it takes?
What Percentage of Small Businesses Fail?
The scary fact is that nearly 50% or more of new ventures and small businesses that get started each year will fail within the first five years of opening their doors. That is a shocking number. Even worse is the fact that if that business is a restaurant, nearly 8 out of 10 will fail their first year in business. Before you shy away from starting your business, though, take into consideration why.
Why do small businesses fail within the first five years? There are several key reasons according to the Small Business Administration.
- Lack of Experience. They just do not take a step in the right direction with experience. If you have not done what you are planning to do before, education and experience can be a key to success.
- Poor Location. Does your small business make sense, get the right amount of traffic and fit well in the surrounding area? If not, it could be the reason that your business fails.
- Insufficient Capital. Of course it is costly to start a business. The sheer costs of getting inventory, opening a store, buying equipment and so on are exceedingly high. This is one of the largest reasons businesses fail. Most people underestimate what it takes to start a business and keep it going past the first year or two.
- Poor Inventory Management. If you have too much, you have too much capital invested in the inventory. Too little, and you lose sales.
- Poor Credit Arrangements. If you do not have enough credit or use too much credit, you can find yourself facing even larger costs.
- Over Investment in Fixed Assets. Such things as your equipment and your land investment are costly and can not be paid late. Too much invested there locks up a huge amount of capital.
- Unexpected Growth. If you grow too fast and can not keep up, you find yourself with customers that are left unsatisfied. Most would consider growth of any kind a great problem to have in a new business, but if not managed correctly it could easily spell trouble.
- Business Funds Used For Personal Use. The funds from your business are only for your business. A lot of business owners start off with too high a salary or award themselves with hefty bonuses instead of pouring money back into the business.
You can see just why small businesses fail within the first five years. It is not an easy road to go down, but it is often necessary for you to take advantage of the mistakes of others for your own benefit. Most profitable small businesses make it through hard work, determination and avoiding the pitfalls listed above.
|
