Article

2020-03-26 Economy

What Percentage of Small Businesses Fail?

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Posted by g(r)omgoru 2020-03-26 06:57|| || Front Page|| [3 views ] Top

#1 If you survive the first two years you have proven your business model - which attracts deep-pockets competition who use their clout to either buy you out or force you out.

Posted by Glenmore 2020-03-26 11:41|| 2020-03-26 11:41|| Front Page Top

#2 And there are small businesses, which turn into big ones... just sayin'

Posted by European Conservative 2020-03-26 11:43|| 2020-03-26 11:43|| Front Page Top

#3 I remember a business in Regensburg that used to say:
"We were destroyed by the war but survived."
"Oh, American bombs?"
"No, Swedish dragoons!"

Posted by European Conservative 2020-03-26 11:52|| 2020-03-26 11:52|| Front Page Top

#4 I think the % Failure is skewed by restaurants which are notorious for that, with the slim profit margins, high costs

Posted by Frank G 2020-03-26 12:11|| 2020-03-26 12:11|| Front Page Top

#5 Indeed. And bars, nightclubs... easy come, easy go.

Posted by European Conservative 2020-03-26 12:21|| 2020-03-26 12:21|| Front Page Top

#6 Lots of businesses go "bust" for "tax" reasons every 2 years...

Posted by Bright Pebbles 2020-03-26 13:49|| 2020-03-26 13:49|| Front Page Top

#7 The entire article is a sales pitch for their loans and consultation.

As much as I enjoy macro stats and people who go straight from college to the sales floor, I can't put much faith in this.

Because it isn't just competition with other businesses 'in its own niche' now is it? There is competition for access to capital - what this article is selling - Bass Pro is going to get its operating loan, Joe's Gun Shop in New Jersey isn't. Business compete with the insurance industry and their whims especially if the business is deemed high risk. Businesses compete with government, say The Council wants a statue of John Jacob Jingleheimer Smith put up in a district because chic de jour and they want to pay with a sales tax increase. Minor if you sell souviniers, big deal you sell cars. Suddenly two exclusive businesses not in the same niche are butting heads. Four weeks ago Bob the Shrimp Boat Captain was just shrimpin', now he competes with Big Trucking and the Government for diesel fuel. Taco Truck guy has to pay off his construction loan, wants to sell to the increased in truckers then Big Sandwich offers free meals and delivery, Big Trucking goes wow look at what we can save in food comp, and Taco Truck guy goes under because traffic is 25% of average.

And that is another thing, consumer behavior. Why go out, if you can even go out, to the steakhouse when Big Burger can bring it to your door, already paid for, and the phone dings to confirm delivery. The more people get used to not going to Thursday sportsball, the less likely they return.

And every one of those percentage points is a failure incurring usually massive debt. Sometimes good business just hit a rock, go ask a cattle trucker or a fracker, no matter the year bullcrap.

Furthermore, those failures show that running a business really isn't for everyone - just like fire fighting, or painting, or coding - so the good operators lost because nobody had Bat Soup Fever in their operating models, including the global medical providers, are real losses especially with a lack of risk taking entrepreneurs.

I was taught that 2 years is a good model, 5 years is good accounting, and 10 years is good timing.

This 'article' makes it sound like captaining a business is like some Dungeon and Dragon character creations. OK, I choose a business class, coding. OK, roll d20 and...ah, tough roll but I'll borrow money and roll again.

And at any rate, go read your post through, even their macro stats put only 20% failures due to outcompeted.

Because Darwin. Galapagos tortoise had a pretty good thing going until one fine day.

Posted by swksvolFF 2020-03-26 14:10|| 2020-03-26 14:10|| Front Page Top

#8 The key datum, swksvolFF, is The takeaway here is that you can pretty much bet on a 80%, 70%, 50%, and 30% survival rate across one, two, five, and 10 years in business‐no matter the year.
Can your arguments explain this empirical observation? If they can't, they're irrelevant.
Look up "scientific method".

Posted by g(r)omgoru 2020-03-26 14:24|| 2020-03-26 14:24|| Front Page Top

#9 p.s. Who told you there's no competition for resources among different species?

Posted by g(r)omgoru 2020-03-26 14:26|| 2020-03-26 14:26|| Front Page Top

#10 I think the % Failure is skewed by restaurants which are notorious for that, with the slim profit margins, high costs

Restauranting B. Hard, and a lot of people get into it not realizing food service is different than cooking up a meal. My limited experience, after poor location and/or inappropriate menu is the expenses. Literal bean counting. First underestimating/forgeting expenses. Take the cheeseburger. They could have the meat, bun, seasonings, prep-cook time all figured..but forget to tally the sliced onion/tomato. That may only be $0.10 but over time that could be the property tax payment. On the flip side just pick a sale price out of a hat, which is fine if the $10 burger is worth $10 but there is still no control, no feedback on profit margin there. Cost of ice, trivial at a glance but may go through 15 pounds on a night.

Building a reputation is another catch. One employee has a bad night and everyone knows about it, especially nowadays when people are live-blogging their dining.

Then they have to guess tastes and trends. Say Mother's Day is coming up, and fried cod seems to be in favor - is that something they order extra of? is it usable if we order too much, don't want Mom to be told we are sold out of what she ordered on Mother's Day. Fried Avacado - trend or fad?

The trick in business is to learn from mistakes made, and try not make a mistake which sinks the business. Restaurant's mistake are not forgiving. They have a tough enough time getting a potential customer to break up their routine and give them a try, but a lost customer is forever. I bet everyone here can think of a time a restaurant did them wrong and never went back.

Fluctuating commodity prices. Best way to measure that is by spreadsheet or other program to manage Cost of Goods Sold. Lot of people don't like to do that. They hire a consultant, they figure COGS, and that's that. Year later, costs are up but sale price isn't changed.

License Fees and Changing Regulations. Miss a new reg or license expiration and they are shut down.

That all happens before the cooler goes out with $5000 worth of food, or vermin find their way in.

I have nothing but respect for restaurant operators, especially the ones who make it look easy.

Posted by swksvolFF 2020-03-26 18:36|| 2020-03-26 18:36|| Front Page Top

#11 The big profit margins are in serving liquor which is why booze-to-go is a big story for restaurants. Unfortunately, it won't be the one drink turns into two or three like it does in the restaurant. Also lost are the spontaneous purchases like dessert and appetizers.

The Big Boys, I would be surprised if they open their lobbies up ever again, and I expect they convert that space into a drive through self service type deal where they pull up, waive their phone or whatever by a sensor, and with a whurr a door open bank-window style and the meal they ordered off the internet, or a card receipt from the walk up window, is right there.

No more having to pay people to sweep, take out trash, restock condiments and drinks, maintain the bathroom, run the register, huge savings.

No more lobby brawls, or up fronts with rude customers. Robberies would be more difficult.

The loss would be customers without vehicles on bad weather days. You know they have their COGS down to the sesame seed and a lean supply chain. Those companies have the 'meh, food' market totally wrapped up.

Posted by swksvolFF 2020-03-26 18:59|| 2020-03-26 18:59|| Front Page Top

#12 Had Phil's BBQ (A San Diego fav) in Santee today for son's BDay lunch - Takeout ordered by phone. Seamless operation, consistent daily traffic according to guy at register

Posted by Frank G 2020-03-26 19:02|| 2020-03-26 19:02|| Front Page Top

#13 All the stats and opinions in the post are suspect to begin with, as it is a lending company making the case for borrowing money. Is there truth there, yes, but I'm not going to bet the business on it.

Organizations, including businesses, operate until the point that expenses overwhelm income and the entity becomes insolvent, usually marked by not making income. Competition can lead to reduced income especially in saturated markets, it can contribute to expenses like advertising and payroll.

There are organizations which outlaw any competition and that is government, and governments go broke all the time.

Example: gun shops in New Jersey. Absolutely no competition but expenses still exist. Ammo wholesalers are wiped of inventory, so with the increase in demand and decrease in supply the cost of restocking shelves increases dramatically where, say the previous sale price is now less than the purchase price. So the store decides to re-stock at the increased price and that is a business risk decision, any retailer who went through The Great .22 Long Rifle Crises will tell you this. Stores were stuck with boxes of .22 were selling at half of what the purchase was, hitting them again. Again, business decision, but if I have no stock, I make no sale, out of business. Then there are utilities which must be paid, loans re-paid, taxes paid, insurance, depreciation, salaries are legally obligated payments to employee no matter what, all those are expenses even before unlocking the door to compete with other businesses.

I can start a business, right now, dipping cow pies into acrylic and selling them. As far as I know, absolutely nobody else is doing this. I get a loan to secure a processing building, I pay someone to either harvest cow patties or dip can't do it alone, cow patties have value and I have no cows (if I did that is a different expense) so I pay to cow owner, advertising, shipping costs, business license fee, property tax and/or lease fees.

Is there any demand for this product? Hell no, so price is set low at say $5. $1 COGS, $1 packaging, $1 waqes leaves me with a net of $2/sale. Say I'm already $100,000 in the hole, I have to sell 50,000 before the next round of expenses just to break even. No competition, but failed business model because poor business plan.

With good argument, this product does fit under novelty souvenir industry, but if you look at something similar like nationalized health care because they can charge whatever (taxes) and let expenses get away because the well never goes dry, perhaps we can see why one day the Galapagos tortoise was the apex terran of the island for thousands of years and the next they are overwhelmed by an unexpected expense of predators, the Wuhan Flu, the time to evolve is too short for success.

Same with the business owners in the front of The Great Chinese Takeout - one day you have the greatest theatre in New York, the next, you are against the law.

We need a sound understand of How Things Work in Business, and many people are going to find that the scene in Back To School where Dangerfield lectures the professor is accurate.

Posted by swksvolFF 2020-03-26 22:30|| 2020-03-26 22:30|| Front Page Top

#14 Cash flow, Grasshoppa.
Cash flow is all ye know on earth, and all ye need to know.

Posted by Lex 2020-03-26 22:38|| 2020-03-26 22:38|| Front Page Top

#15 Cash Rules Everything Around Me.
C.R.E.A.M.
get the money,
thousand dollar bills, y'all

RZA, Wu-Tang Clan, 36 chambers

Posted by swksvolFF 2020-03-26 22:57|| 2020-03-26 22:57|| Front Page Top

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