In a study by Statistic Brain, Startup Business Failure Rate by Industry, the failure rate of all U.S. companies after five years was over 50 percent, and over 70 percent after 10 years. Feb 18, 2017
What is the Small Business Failure Rate?
There are all kinds of statistics out there on new business failures. The SBA site is probably not a good source on business failures because it’s in their interest to keep the number low. Their job is to help people stay in business yet they still say that 30% of new businesses fail during the first two years of being open, 50% during the first five years and 66% during the first 10. Those are still pretty dismal numbers. They are saying that you have a 2 out of 3 chance of being out of business within 10 years.
According to www.fundera.com 20% of small businesses fail in their first year, 30% of small businesses fail in their second year, and 50% of small businesses fail after five years in business. Finally, 30% of small business owners fail by their 10th year in business.
The bottom line is that way to many businesses fail and the other statistic they don’t talk about are the millions of businesses that operate at or below the poverty level. Many stay in business because of a lack of other opportunities, are overly optimistic or pure stubbornness.
Reasons – Why Do Most New Businesses Fail?
According to Investopedia, the four most common reasons why small businesses fail is a lack of sufficient capital; poor management; inadequate business planning; and overblowing their marketing budgets. cash flow problems. … 42% of small businesses fail because there’s no market need for their services or products.Nov 15, 2018.
According to smallbiztrends.com the top 5 reasons small businesses fail are
1. Starting for the Wrong Reason
2. Insufficient Capital
3. Improper Planning
4. Poor Management and Leadership
5. Expanding Too Quickly
Solutions to The Epidemic of Business Failures
If you Google something like “why do small businesses fail” you’re going to get a lot of information. To much information!!! It’s important to keep things simple in a complicated business environment. Most experts would agree that poor planning is in the top 5. I believe that poor planning is the #1 reason why small businesses fail. With the proper plan and the tenacity to carry it no matter what would cut the failure rate in half. Napoleon Hill laid out all of the plans anyone will ever need to succeed. He is directly and indirectly responsible for helping tens of millions of people succeed in business and in life. Napoleon Hill states in no uncertain terms that the starting point for success is “A Definite Chief Aim”. I like to call it an Objective.
When you clearly define your objective in business and incorporate the principles needed to attain that objective, the only thing left is to take action. I believe that the high business failure rate has to do with entrepreneurs taking action first with the only objective being to make money. Generating profits is the objective of every business. It’s so obvious an objective that it’s not even worth stating that it’s an objective. My principle is to “Take money out of the equation”.
In order to succeed in business you must go deeper that the money motive. Whom do you serve and how do you serve them? What problem do you solve and exactly how do you solve it? Most people believe they know but the truth is that they don’t go deep enough. Ask an entrepreneur what they sell and see if they come up with an answer. I prepare tax returns and I charge people to do it. I’m not selling tax preparation services. My clients pay me because they have the trust and confidence that I am doing the best job that I could for them. I’m actually selling that feeling of comfortability, not tax preparation. If you can answer these questions BEFORE you take a leap of faith and start spending money on a business, your chances of success will go up 100 fold. In other words-Plan. State your objective clearly and write it down. Another fact is that journaling, the act of physically writing down your plans, goals, objectives….increase your chances of success dramatically. I don’t know if there are any statistics on this but it’s a fact that many successful people journal. I believe there is a scientific reason for this which is that pen to paper is the first physical manifestation of achieving your desired outcome.
So the simple solution is to lay out a clear and definite plan and write it out. This exercise will cost you the price of a good journal book and a pen. If you can’t afford that you can start with scrap paper. It doesn’t matter, take the action and you will succeed.
Joe DiChiara is an “Out of The Box Thinking”, Entrepreneurial CPA that has helped thousands of small business owners start, build and manage their own business. Joe is a #1 Amazon Best-Selling Author and in 2009 he discovered a new approach to business through a book called “The Science of Getting Rich” by Wallace Wattles.
As a student of small business Joe discovered that the vast majority of small business owners fail while being overtaxed, unprotected and unfairly targeted by The IRS. Joe is a small business owner himself and has 1st hand knowledge of the abyss of government regulation and the devastating impact it has on small business owners across America.
Joe believes that If entrepreneurs followed a few simple principles small business owners will be able to overcome any and all obstacles in their way, including The Internal Revenue Service!
www.bedrockbusinessbuildersuniversity.com is the latest step Joe has taken to create a platform to achieve this goal. It includes free courses, tools, and resources for small business owners and potential entrepreneurs with passion and purpose.