Top Ten Reasons Small Businesses Fail – It is common to experience difficulties in the first years of your new job. If you want to be prepared, there are a few things you should know beforehand. Regardless of the problem, it is impossible to build a successful business.
The Small Business Administration estimates that more than 600,000 new businesses open in America each year. Some fail, so small / big. In addition, half of the US population works in small businesses.
Top Ten Reasons Small Businesses Fail
Businesses can fail for a variety of reasons, including financial problems, lower market demand, and labor problems. Also, failure rates can vary by industry or country.
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So, if you are thinking of starting a business, the following business failure statistics will give you all the information you need to avoid the mistakes made by failed businesses.
A survey conducted by the Bureau of Labor Statistics for businesses since 2016 gives a clear picture of the rate of job failure over the years. This shows the percentage of businesses that will not survive until 2021.
In 2016, 733,085 new businesses were created in America. 20.4% of them closed their doors after the first year (in 2017). In the second year, the percentage increased by 31.2%, and in the third year by 38.8%.
This is not surprising, as there are risks and uncertainties associated with continuing to do business after a period of time. And that’s why entrepreneurs deliberately choose to close their businesses over the years. For better ideas, Entrepreneurship statistics are here.
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You can see that after 5 years, the failure rate of businesses started in 2016 reached 49.7%. This means that in the first year, i.e. in 2021, approximately half of the companies will be closed.
There are various pros and cons to starting a business in different countries around the world. Starting a business in one location may be easier than another due to various factors such as credit approval, competition, market demand, etc.
Therefore, the failure rate for businesses can vary by region. The following regional business failure statistics prove this.
U.S. Bureau of Labor Statistics data shows the failure rate of new businesses over a 10-year period. Statistics show the following.
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State-level business failure statistics reveal something interesting about American startups. It found that countries with the highest failure rates at 1 year did not have the highest rates at 5 or 10 years.
You might find Washington DC to be one of the best places to start a business, right? incorrect! Things change dramatically when looking at business failure rates after 5 and 10 years. Here are the findings.
You can see that the most interesting thing is Washington’s work. Washington has the lowest business failure rate in 1 year (10.9%) and the highest failure rate after 5 years at 59.6%.
It also has the most businesses that close after 10 years (81.7%), which is 16% higher than the US national average of 65%.
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The first two years are the most important years for a new business. At this stage, you must have a winning business strategy to succeed. But many fail at this step.
The most common reasons for increasing small business failure rates are weak business plans, lack of market research, and running out of funds to sustain the business. But these are not the only culprits.
There are other reasons why early stage businesses don’t survive. The following business failure statistics highlight the main reasons new businesses fail.
Running out of funds is a major setback that many new businesses face. So what percentage of small businesses fail due to lack of funding? According to a Statista report, 38% of businesses fail due to cash flow problems and failure to raise new capital.
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Cash flow problems – Insufficient liquid cash flowing in and out of the business plays a major role in financing problems. This can happen when the product is not suitable for the market (low demand) or when there is a lack of confidence to find capital.
There is always a chance to make a financial mistake when dealing with unpaid debts. Growing a business too quickly is another reason companies run out of cash.
What is worse than knowing that the product/service you are selling is not wanted! Business failure statistics state that 35% of new businesses fail because customers don’t need what they’re selling. There are several reasons for this.
It is a mistake to assume that people will buy your product because of additional features. No one will spend more if they don’t have to. To know if there is a market demand for your product, you need to do internet research and talk to potential customers.
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Every business needs to know who their competitors are before creating a strategy. According to statistics, 20% of businesses are closed because they don’t pay attention to competing businesses, and as a result they can’t beat them.
Customers prefer lower prices, but buying from trusted brands is also important to them. So, as a startup, you shouldn’t just focus on low cost. To attract customers, you need to offer something unusual that customers will appreciate in order to stay ahead of the competition. These Brand Loyalty Statistics will help you understand better.
A business model is essentially a plan of how the business will make a profit. This includes the product/service to be sold, the expected cost of capital and the target market. Statistics show that 19% of new businesses follow a failed business model.
About 15% of businesses are closed for not pricing their products correctly. There are no rules when it comes to pricing, but it plays an important role in a successful business.
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A competitive price can attract a lot of attention, especially if your products offer the same price. Your price should be low enough to attract customers, but high enough to cover your costs and make an adequate profit.
14% of small businesses don’t know how to attract their audience and it’s the main reason they fail. Marketing your new business is the most important skill any owner should develop. Even if you can’t market your product effectively, they won’t notice.
With 86% of businesses using Facebook to advertise and 60% of online shoppers discovering new products on Instagram, social media advertising is very effective for beginners. It is also relatively affordable and you can choose with your target audience.
The wrong team can be the cause of 14% of business failures. A startup must have a diverse team with all the necessary skill sets that will contribute to the future success of the business.
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There’s a reason apathy and burnout are at the bottom of the list. 92% of small businesses do not regret starting a new business. For those who want to start a business, they should have more goals and passion.
The World Health Organization officially declared Covid-19 as a pandemic on March 11, 2020. It is interesting that the people who started their business at the beginning of this crisis. They are already better than when they started a year ago.
BLS (US Bureau of Labor Statistics) data shows that 20% of small businesses do not survive a year. The data applies to all American small businesses with employees and is fairly consistent from year to year. Thus, we can say that economic factors have less influence on the number of businesses that fail each year.
However, data from the SBA’s business failure statistics show that failure rates vary by industry. The following statistics from the US BLS analysis provide a clear picture of business failure rates by industry.
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The mining, quarrying and oil/gas extraction industry has the highest rate of business failure. You need to rethink your plans in this industry as the statistics of business failures show
The industries with the best survival rate are (Agriculture, forestry, fishing, hunting) and (real estate and rental). The statistics below show the industries with the lowest business failure rates.
Since lack of cash and insufficient market research are the main reasons for business failure, you need to make sure you don’t become a victim. To start a successful business, you need market research and a thorough financial plan. How to start a business in 2022.
Set goals – Know where you are now and set goals for where you want to be at a given time. Determine how much you want to invest and how much you will earn. That way, you will keep track of your progress and avoid wandering.
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Market Research – Thorough market research on your product is very important. Know what your customers want, what they will do quickly, their earnings and how much they want to buy. A new product that ticks all the important signs immediately stands out among others.
Control your spending – Think twice before writing a check or you’ll end up spending more on things you don’t need. Know the right time
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