Business Failure: The Percentage of Business Failure and How to Avoid It

Business Failure: The Percentage of Business Failure and How to Avoid It.

Business Failure: Owning a business of your own comes with a lot of risk and challenges. And to avoid the business not to fail, you have to sustain that business by  going extra miles, there is always a high possibility of failure. 20% of small businesses fail in their first year, 30% of small business fails in their second year, and 50% of small businesses fail after five years in business.

The Percentage of Business Failure and How to Avoid It

Small businesses are vital to the economy, employing the majority of workers in the U.S. Unfortunately, many small businesses fail. This is why soon-to-be small business owners embarking on a new venture oftentimes want to know what the small business failure rate is.

It’s helpful to actually know what percentage of small businesses fail—because many do succeed. And you don’t want anyone scaring you out of your dream. The best thing you can do is have facts. I will be helping you highlight the fact in this article. Read on.

It all Depends on the Industry

General small business failure rates can be discouraging, but these trends do vary by industry.

For example, restaurants generally fare well in their first year, with only a 17 percent chance of failure. In the second year, about 30 percent of restaurants fail, while 50 percent fold by the fifth year.

Healthcare and social assistance businesses are more likely to survive, with about 85 percent surviving their first year, and an estimated 60 percent of them surviving by the fifth year.

In contrast, only 75 percent of businesses in the construction, transportation, and warehousing businesses will make it past the first year, with only 40 percent of construction businesses and 30 percent of transportation and warehousing businesses making it making it to their fifth year.

How to Avoid Small Business Failure

1. Not Investigating the Market

So you’ve always wanted to open a real estate agency, and you finally have the means to do so. But your desire to open the agency blinds you to the fact that we’re in a down housing market; the area where you want to work is already saturated with agencies, making it very difficult to break in.

This is a mistake that will cause you to fail from the beginning. You have to find an opening or unmet need within a market and then fill it rather than try and force your product or service in. It’s a lot easier to satisfy a need rather than create one and convince people that they want to spend money on it.

2. No Business Plan

No Business Plan

A solid and realistic business plan is the basis of a successful business. In the plan, you will outline realistic goals for your business; how your business can meet those goals and possible problems and solutions.

The plan will figure out if there’s a need for the business through research and surveys; it will figure out the costs and inputs needed for the business; and it will outline strategies and time lines that should be implemented and met.

Once you have the plan, you must follow it. If you start doubling your spending or changing your strategies, you are asking for failure. Unless you have found that your BP is overwhelmingly inaccurate, stick with it. If it is inaccurate, it’s best to find out what’s wrong with it, fix it and follow a new plan rather than change how you do business based on quick observations.

3. Too Little Financing

If you have started a company and things aren’t working out, you’ve got little capital and a struggling business; you’re really not in a good position to ask for another loan. Be realistic at the beginning, and start with enough money that will last you to the point where you’re business is up and running, and cash is actually flowing in.

Trying to stretch your finances at the beginning may mean that your business never gets off the ground, and you’ll still have a lot of cash to repay.

4. Bad Location

A bad location is self-explanatory if your business relies on location for foot traffic. You should try putting your business on the map, where the demand of your product is high. Your location has a very serious role to play when it comes to your business growth.

So make sure you do some research when trying to establish your business, to avoid business from failing.

5. Rigidity

Once you’ve done the planning, established your business and gained a customer base, don’t get complacent. The need that you’re fulfilling may not always be there, monitor the market and know when you may need to alter your business plan.

Being on top of key trends will allow you lots of time to adjust your strategy so that you can remain successful. One must only look at the music industry or Blockbuster video to know that successful industries can undergo huge changes.

6. Expanding Too Fast

Expanding Too Fast

Now that your business is established and successful, it’s time to expand, but you must treat the expansion like you’re starting all over again. If you’re expanding the reach of your business, make sure that you understand the areas and markets into which you’ll now be reaching.

If you’re expanding the scope and focus of your business, make sure you understand your new products, service and intended consumer as much as you do with your current successful business. When a business expands too fast and doesn’t take the same care with research, strategy and planning, the financial drain of business fail can sink the whole enterprise.

Conclusion

The rate of business failures can be very much scary, but that doesn’t mean your business is going to fail. If you follow the basic point highlighted above then you are sure to succeed.

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