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Why Do So Many Small Business Fail?

Stevan Browning • October 13, 2019

 

Much ink has been spilled over why businesses fail. Opinions vary from expert to expert, but there are common themes. The following table summarizes several recent articles on the topic. Most small businesses reportedly fail due to a lack of:

 

Reasons Business Fail

Over 20% of start-up companies fail to survive Year 1 and, as companies’ age, the failure rate averages about 5% per year. Small businesses represent a substantial portion of the economy, however, with 73.4% of employers having fewer than 10 employees. Some 274,000 businesses in this size class fail every year, and many could have been saved through more effective management.

The majority of firms with employees are truly small, with fewer than five workers. Between 2008 and 2014, there were between 4.04 million (2011) and 4.12 million (2014) employers in this category, representing an average of 54.6% of all employers in the U.S. The next largest group of employers is those with between five and nine employees; nearly three quarters (73.4%) of employers have fewer than 10 workers. Even if 95% of these firms survive each year, that means over 274,000 businesses in this class fail annually. While some close due to the retirement of the owner or acquisition by a larger enterprise, and some simply represent bad ideas that were never likely to succeed, many could have been saved through better management.

Date Sources:

U.S. Census Bureau. Business Patterns. Paid employees for pay period including March 12.
Source: http://factfinder.census.gov/

Eric T. Wagner. Five Reasons 8 Out of 10 Businesses Fail. Forbes. September 2013.
Source: http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/#3a83b9cb...

Travis Thorpe. The Top 5 Reasons Small Businesses Fail. Inc. July 2014.
Source: http://www.inc.com/travis-thorpe/the-top-5-reasons-small-businesses-fail.html

Elaine Pofeldt. 11 Common Reasons Small Businesses Fail. July 2014.
Source: http://www.cnbc.com/2014/07/30/11-all-too-common-reasons-small-businesses-fail.html

Jay Goltz. Top 10 Reasons Small Businesses Fail. January 2011.
Source: http://boss.blogs.nytimes.com/2011/01/05/top-10-reasons-small-businesses-fail/?_r=0

Melinda Emerson. Top Preventable Causes for Small Business Failure. April 2013.
Source: http://www.huffingtonpost.com/melinda-emerson/small-business-failure_b_3184608.html

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