How Small Businesses Fail – Many people dream of starting their own business based on their ideas and dreams. They try to get rid of workplace rules, politics, and all the internal chaos that can limit their growth.
No wonder these same people want complete control over their time and goals. Starting a business can seem overwhelming and difficult at first, but if you break down the process of starting a business into steps, you only need to take the first big leap that will guide you on your entrepreneurial journey.
How Small Businesses Fail
And whether it’s an e-commerce store or a brick-and-mortar business, knowing what’s going on in the small business world can help you better manage your risks and opportunities.
Small Businesses Fail But That Can Be Prevented
Whether you already have your own business or are planning to start a new one this year, these statistics will help you understand what’s new and what’s coming. These statistics will help you understand what affects small businesses, how they operate, how they affect the economy, and more.
The most recent statistics show that there are 32.5 million small businesses in the United States, accounting for 99.9 percent of all American businesses (SBA, 2021).
The Small Business Administration (SBA) defines a small business as one with fewer than 500 employees. This means that many highly rated startups in the US fit this definition of a small business.
The definition of a small business varies around the world. By comparison, in the EU any company with fewer than 50 employees is considered a small business. In Australia, businesses with fewer than 15 employees are considered small businesses.
Business Failure Statistics
Small business statistics show that most businesses in America have fewer than 500 employees. If we break it down further, we see that there are approximately 38 million businesses with fewer than 100 employees and 23 million businesses with less than 20 employees.
With so many small businesses in the United States, it’s no surprise that small businesses create the majority of jobs there. According to the Small Business Administration, small businesses create 1.5 million jobs each year and account for 64 percent of new jobs in the United States (Fundera, 2019).
Last year’s statistics show that small businesses have always been an integral part of the US economy and growth. They offer job opportunities, economic growth and a range of unique products and services. So whether they become bigger companies or not, they contribute to economic growth.
More than 90 percent of the companies represent small and medium-sized enterprises, also known as SMEs (SalesForce, 2019). And as the latest statistics show, small businesses are responsible for creating large jobs.
The Top 10 Reasons Why Small Businesses Fail
In recent years, small and medium-sized enterprises have continued to create jobs. SMEs are also key players in driving innovation. These investments vary widely across companies, industries and countries. However, better access to global markets and improvements in knowledge networks, as well as digitization, have played a major role in promoting the participation of SMEs in the global economy. In general, SMEs make a significant contribution to the growth of the world economy by providing employment, promoting sustainable industrialization and promoting innovation.
There are many reasons why people may be motivated to start their own business. Among the most common motivations, 29 percent of respondents said they started their own business because they wanted to be their own boss (Guidant Financial, 2021).
The second most popular reason for starting your own business is frustration with corporate America. 17 percent of respondents chose this as their primary motivation. Other common reasons include wanting to pursue your passions, having an opportunity, feeling inspired, and just not feeling ready to retire.
Starting a business means that people have the freedom to be not only their own boss, but also the boss of their time. It gives you the freedom to make decisions and work how, when or where you want. There can be many reasons why people around the world choose to take advantage of this financial freedom, but most of the main motivations are related to freedom from their current job and more independence in their work.
Eight Common Reasons Small Businesses Fail
Uncertainty is an important factor that can really affect small businesses, and this is especially evident during the coronavirus pandemic.
According to the latest small business statistics, nearly one-third (31 percent) of small businesses in the United States are currently inactive (Facebook, 2020).
More than 70 percent of America’s small businesses closed in March 2020, when the United States became the new epicenter of the virus. More than 60 percent of these small businesses were closed due to orders from government or health authorities as much of the country shut down in an effort to contain the spread of the virus.
Some small business owners have taken steps to adapt to the new reality created by the coronavirus. Many of them have increased their online activities to try to reach their customer base and keep their business alive by selling their products and services online.
Why Businesses Fail (and How To Fix It)
In fact, more than half (51 percent) say they have increased interactions with their customers online. Additionally, 36 percent of personal businesses that use online tools now also do all of their sales online.
Looking ahead, 28 percent of these small business owners say their biggest challenge in the near future will be cash flow, followed by a lack of consumer demand.
Statistics show us that the new generation of entrepreneurs is more likely to step on the page. In fact, Millennials and Gen Zers are 188 percent more likely to start a side business compared to Baby Boomers or traditionalists (Salesforce, 2019).
Compared to Baby Boomers, Millennials and Gen Zers are also 48 percent more likely to say they started a business because they had an idea they were passionate about bringing to market. And the ease with which you can start your own business has made the process much more convenient for younger generations who want to be their own boss. With the rise of online marketplaces, low or no code, and outsourcing development, it has become easier to run a business from home.
How Long Do Most Small Businesses Last?
One of the biggest fears of people starting their own business is the risk of failure. And it’s not an unrealistic fear. In fact, recent statistics show that more than 20 percent of small businesses fail in the first year and nearly 50 percent of small businesses fail in the first five years (Bureau of Labor Statistics, 2021).
Now, these statistics should not deter you from starting your own business. In fact, it should do the opposite. By knowing why and how most small businesses fail in the first year, you can plan a business strategy to overcome potential risks that may come your way. Of course, you won’t be able to completely eliminate all risks, but it will help you better understand what you can do in different scenarios that could happen.
The main reason startups fail is lack of market demand. In fact, 42 percent of small businesses fail for this reason (CB Insights, 2019). So if there’s one thing you should be sure of before starting a business, it’s the need for what you’re offering to your customers.
The second most likely reason new businesses fail is lack of money. Statistics show that 29 percent of new businesses allegedly failed due to lack of finance. Other reasons for startup failure include not being able to find the right team to work with, being outcompeted by competitors in the industry, cost issues, and an unfriendly product.
When Small Businesses Face A Challenge Where Should They Go For Expert Advice?
When thinking about the reasons why startups fail, it’s safe to say that it’s a combination of customer-centric reasons as well as a lack of resources, which are the building blocks of a successful business.
In the early years of starting a new business, small businesses face a number of challenges that can limit their potential. One of the biggest problems small businesses face is the poor quality of their workforce. In fact, 52 percent of respondents said the most important issue for small businesses is the quality of their workforce (CNBC, 2019). Small business owners say it’s hard to find qualified people. For companies with more than 50 employees, a percentage of owners believe that finding qualified employees is more difficult.
Apart from this, small business owners also face financial problems. Because smaller businesses don’t have the advantage of having lots of cash, they usually struggle to figure out how to manage their finances.
Social media is a favorite among small business owners. In fact, 64 percent of small businesses surveyed use social media in their marketing strategy (The Manifest, 2019).
Small Business Statistics You Need To Know For 2023
The same study shows that almost all small businesses advertise. And in most cases, this ad is served through digital media
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