4) Business Failure Statistics
Business failure statistics show that about 96 percent of small businesses (1–99 employees) that enter the marketplace survive for one full year, 85 percent survive for three years and 70 percent survive for five years (Key Small Business Statistics - January 2009, Industry Canada).
Microenterprises (businesses with 1 to 4 employees) have a slightly lower business failure rate than other small businesses; after five years in business, 70.4 percent of micro-enterprises survived compared with 66.9 percent of other small businesses (Ibid).
Looked at another way, though, "smaller" businesses fare less well than bigger ones. Businesses with revenues of less than $30,000 had significantly higher business failure rates than those observed for businesses with revenues of more than $30,000. Of those businesses with revenues of less than $30,000 that started in 2001, 55.0 percent survived after three years and only 36.1 percent survived after five years (Ibid).
Reasons for Business Failure
Most business failure occurs small businesses fail because of mismanagement. According to Statistics Canada, (Failing Concerns: Business Bankruptcy in Canada, 1997), most businesses fail because of weak general management, weak financial management, or weak marketing capabilities.
Almost half of the firms in Canada that go bankrupt do so primarily because of their own deficiencies rather than externally generated problems. They do not develop the basic internal strengths to survive.
"The main reason for failure is inexperienced management. Managers of bankrupt firms do not have the experience, knowledge, or vision to run their businesses. Even as the firms age and management experience increases, knowledge and vision remain critical deficiencies that contribute to failure" (Ibid).
Avoiding Business Failure
How do you avoid business failure when starting a small business? Preparation and planning are key.
This article is all about the first step in starting a small business, exploring your attitudes and abilities to determine whether or not you want to start your own business. From here, if you've decided that starting a small business is right for you, the next step of preparation is to decide what kind of business you want to start, and begin working on your business plan. You'll find information on how to write a business plan and samples of business plans that you can use as models in my Business Plans library.
When you're wondering if you're suited to start your own business, quizzes are fun, but it's important to remember that getting a low score on any of these "tests" doesn't mean that you're not cut out to be an entrepreneur and that you should forget all about ever starting a small business. Research leads to many generalizations that are not true in the individual case - and you may be the exception.
What do you really want to do and why do you want to do it? "Do what you love" is still sound advice; having a passion for what you do will fuel your commitment and give you the energy you need for the long haul. Thinking of starting a small business? What is your "burning desire" and how can you shape it into a reality that will provide you with both satisfaction and a profit? That's really the only question you have to answer when starting a small business of your own.