FAILURE RATE OF FIRST YEAR BUSINESSES

Over the last two years I have presented over 70 times a free seminar at Workforce Centers called “How to Start a Successful Small Business”. In each of these seminars I ask a question about the failure rate of new businesses within the first 12 months of operation. Usually the answer ranges from a high of 90% fail in the first year, to a low of 20% fail in the first year. So what is the real answer?

First off, if you Google® failure rates of new businesses there are over 67 million responses. When looking at the first ten pages you find there is virtually no really data on this subject. There are articles that say 90% of new businesses fail. There are also articles that say 50% fail and so on. To me the only real article about this subject was written by Scott Shane a college professor of Entrepreneurship. Use the attached link to view an article by Scott: http://smallbiztrends.com/2008/04/startup-failure-rates.html.

To make a long story short, Scott makes the case that about 25% of new businesses fail in the first 12 months of operation. In reality this figure may be higher (up to 40%) when you take into account that in many states when you file for a Sole Proprietor, the filing is good for 10 years and no annual renewals are required. In any case, small business start-ups do fail and the first year of business has the greatest number of business failures. So my opinion on this subject is let’s not spend a lot of time focusing on the failure rate; let’s focus on why new businesses fail. If you know why small businesses fail in the first year than you can learn from other peoples mistakes and make sure you don’t do the same thing. In the next few posts I am going to share with you the four main reasons a small business fails in the first year of business.

If you have any comments on this post or would like to ask me a question, please contact me at bob@21questionbusinessplan.com.

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