From Startup to Small Business to Out of Business, Top 10 Reasons Why Young Businesses Fail
The following information is from an article from statistic brain and DB Squared.
There is as much to be learned from failures as there is from success. Find out which small business startups are most likely to fail in the first five years, and why.
The industries with the highest failure rates by year four (when 50% of all new business startups are said to have failed) include:
Information – only 37% still in business after 4 years
Transportation / Communication / Utilities – only 45% are still in business after 4 years
Retail – only 47% are still in business after 4 years
Construction – only 47% are still in business after 4 years
Manufacturing – only 49% are still in business after 4 years
On the flip side, the industries which have the higher success rates by year four are listed as follows:
58% of Finance / Insurance / Real Estate organizations are still operating after year 4
56% of Education / Health organizations are still operating after year 4
56% of Agriculture organizations are still operating after year 4
55% of Services organizations are still operating after year 4
54% of Wholesale organizations are still operating after year 4
10 Areas Where Incompetence and Inexperience Can Hurt a Small Business Most
From cash flow to customer terms, what you don’t know might hurt your small business. Find out how to protect and strengthen your small business by shoring up knowledge and expertise in these ten areas that account for 75% of all small business startup failures.
Unless you have launched a startup or started a small business of your own, it is hard to describe the feeling of excitement and limitless opportunities that small business owners experience when they first open their doors (whether brick and mortar or virtual!) Equally difficult to describe is the disappointment that the same small business owner will experience if they are forced to close those doors permanently, because their business is no longer viable.
As alarming as it sounds to say that half of all startups are no longer in business by the 5 year mark, it’s not like the 5 year mark is magic. In fact, more than seven out of every ten startups will fail within the first ten years.
Statisticbrain.com lists the top ten reasons that new small businesses commonly fail under two main categories: incompetence and inexperience. Though one could make the argument that many incompetency occur due to inexperience or lack of knowledge needed to put the right policies into place, for now, let’s stick with their categories and talk a little bit about the most common reasons that startups tend to fail within the first five years.
Top 10 Reasons Why New Small Businesses Fail
Incompetence accounts for 46% of small business failures within the first ten years of operation. The specific areas of incompetence that derailed these startups included:
living too large
not paying taxes
no understanding of pricing
lack of planning
no understanding of financing
no experience in record-keeping
As you read through the list, it’s easy to conclude that many of these small business failures could have been prevented if the entrepreneurs had educated themselves in the areas of finance, taxes, record keeping and pricing. What’s more, the problems that result in all seven of these areas directly affect cash flow, which is the lifeblood of any business, of any size.
Inexperience accounts for 30% of small business failures occurring within the first ten years of operation. The three specific areas where lack of knowledge and experience resulted in startup failure were:
poor credit granting practices (lack of experience in setting the right customer terms)
expanding too fast
It is critical to have a well prepared business plan before ever starting a new business venture.