Why Most New Small Businesses Fail?

Everyone has dreamed about starting a business and being their own boss. Most who pursue that dream find only frustration and failure.

Since 1986, as many as nine out of ten new businesses have closed in their first year. According to a recent survey of failed business owners, “lack of planning” was the number one reason listed for new business failure. Other reasons included were: lack of experience, money, and low sales.

Carol Denbow is a retired business owner and author of the book Are You Ready to Be Your Own Boss? “I think most people just get tired of feeling used and unappreciated at their jobs. They get their inspiration for entrepreneurship out of frustration. They see a company that they feel could be operated better, and they make the decision to go out and try it themselves. They are sometimes shocked at the overwhelming task of operating and growing a successful business. From lack of planning, and out of total frustration, they close their business and return to their employee status.

It’s really a shame; there are a lot of talented people out there who could possibly build a better company. But their lack of planning from the start closes the door on their odds of success, sometimes before they even open the doors of their new business.”

One of the most important calculations when planning a new business, which most new entrepreneurs grossly underestimate, is their personal cost of living. They list all the expenses their new business will have, but they neglect to recognize the total of their everyday personal expenses. The household bills still show up in the mail box, even though the chance of showing a profit in new business might take up to three years.

According to Denbow, the number one reason people listed for wanting to be self-employed was, “I want to work my own hours.” The time needed to get a new business up and running is a main planning issue also underestimated. New business owners most often need to invest many more hours than they did while working for someone else. Most new entrepreneurs quickly come to realize they have committed to more than the normal forty-hour work schedule. Business owners work an average of sixty hours a week.

Studies show that businesses who do survive longer had more cash up front to invest. Other survival factors included higher education and ten years or more previous experience in their field. Age is also a factor for success. According to a 2002 United States Census Bureau report, most successful business owners are over the age of thirty-five.

Ms. Denbow suggests if you are considering starting up a business of your own, do the proper planning. Research the industry you’re interested in, and see where the closest competition is. Get yourself educated about your new business. Avoid taking large loans to fund your new venture. Instead, keep your business idea in proportion to the amount of money you have to invest. There’s always a way to work out your idea without exceeding your means.

With as many as nine out of ten new businesses closing in their first year, knowing the reasons for those statistics is crucial to starting a successful business. Being self-employed can be gratifying and rewarding. With the right planning, success is achievable.