Exposing the Truth About Small Businesses
Statistics to displace the discouraging rumors we have heard about small businesses and gives some insightful information regarding opening your own business.
Who has not heard that nasty rumor that 80% of small businesses fail within the first four years? That’s just 2 out 10 that are successful, if we are to believe our sources.
Failure is defined as “lacking or insufficient; to fall short” according to Webster’s New World Dictionary (1980). A study provided by the Business Information Tracking System (BITS) shows that half of new small businesses survived beyond four years According to Characteristics of Business Owners (CBO) of those that did close approximately 1/3 were successful when they closed their doors. Closing a business is not synonymous with failure. The Business Information Tracking System (BITS) reports that of those that closed their doors, many followed a planned exit strategy in that they did not leave the business owing large amounts of money, and most either sold the business and or retired. According to the Small Business Association and the Wall Street Journal (taking sole proprietorships out of the equation) about 80% of all new small businesses succeed after 4 years.
Money Matters
It takes money to make money. So if you have no money there is no hope of owning your own business? Here are some ways to stay within the budget and control costs:
- Location – If at all possible choose a business that you can start from home or by sharing a small office space with someone else until your business takes off
- Research – The internet is such a wonderful place to find information. Look into similar businesses and try to discover their strengths and weaknesses, also be aware of the number of businesses which provide the service you would to market. Is the area already saturated with this type of business, or is there a real need? You want to compete successfully. Also research your own motives and objectives. Do you have the drive, knowledge, skills and motivation that you need to succeed?
- Product or Service – If at all possible provide a service as opposed to a product. This will save on inventory costs. If you are determined to sell goods, try using a consignment service or purchasing from a liquidator to fray costs.
- Personnel – Having a staff increases expenses tremendously. If possible hire personnel on a project to project basis or commission only. Another possible method of payment would be to allow your staff to buy into the equity of the business. This would mean they believed in your venture, and would be more encouraged to see you succeed. This is a great staff motivator.
- Equipment – Check the papers for companies that are either liquidating or remodeling. Sometimes equipment can be purchased for a fraction of the cost. There are also sites such as Freecycle where people place items no longer wanted on a board. There is no cost involved for acquiring these products.
- Legal and Accounting Service – Not only are there workshops provided by the Small Business Administration, but some attorneys and accountants will waive fees temporarily to assist in your start up. Your banker is also a good source for financial information. Many banks also provide free checking to the small business owner.
Job Market/Unemployment Rate
Not many jobs are created by the small businesses. During 2003, which is the most recent year available for this data, small firms created 1.99 millions jobs, while large firms consisting of 500 or more employees lost 995,000 jobs. This information is provided by the SBA Office of Advocacy.
Economical Contribution
Small firms are not contributing much to our economy. Again we have statistics from the Small Business Administration to dispute our rumor. There are some sectors of our economy where small businesses comprise the majority of that field, for example photo finishing, dry cleaning, laundry services, construction, and machinery repair to name a few. Here small businesses make up 80 % of the United States market.
Healthcare
Small businesses do not provide their employees with health care. While it is true, small businesses are not afforded the opportunity to pay the lower costs in health care, the facts are that 48% of businesses with 250 employees or less are still offering their employees health care.
There is an effort to alleviate the difference of costs going on currently by the National Federation of Independent Business. Their site offers more information regarding their health care lobby.
So for those of you who are contemplating opening your own business, do your homework, do not believe everything you hear, and good luck. Send me your business card.
7 Comments
Thanks for letting the world know the true survival rates of new small businesses — the odds are still long, but not impossible! Also, note that the information comes from the Office of Advocacy of the U.S. Small Business Administration (not Association, we are a government agency).
John McDowell
Press Secretary
Office of Advocacy
I stand corrected. Thank you for your input.
Very helpful, useful, informative article, as usual. I hope to open my own business someday, and these are very helpful, encouraging info! Keep up the good work!
Thank you, Beatrice, for your comment. I never know if I thank a commenter at my site, if they will receive their thank you. LOL
Great article. Very Interesting.
ET, thank you for reading and encouraging.
For years I have heard the rumors you’ve listed but have never heard any of the truths written here. Thank you for giving so many of us hope that one day we can be independantly employeed!