The small business marketplace is extremely dynamic and the changes are fast. Here are some encouraging facts from the US Small Business Administration on small businesses. There are about 30 million small businesses in the United States and employ just over half of the country’s private workforce. They employ a staggering 40% of high tech workers such as computer professionals, scientists and engineers. More than half of the small businesses are home-based businesses and two percent of them are franchises. One of the most important aspects is the fact that a majority of innovations in the United States come from small businesses.
In 2008, there were 627,200 new businesses that started, 596,600 businesses that were closed and 43,546 companies that filed for bankruptcy. According to business experts, of all the small business startups, one-third of them are profitable and successful, a third of them just about break-even and the rest of them are down with negative earnings. According to SBA, only two-third of small business startup companies survive after the first two years and only a half of them survive after four years. Past trends have shown that the biggest drop comes after the first 5 years. Only 30% of businesses are still alive after 10 years. Another noticeable statistic is that close to 25% of the businesses do not even last a year. This shows that the first year is the hardest and if the business does well after 3 years, it is very likely that they will do well if they keep working with the same aggression. This trend is more or less common across all industries. Even though these statistics are scary for new entrepreneurs, they have to look at the grit and the good business planning and execution of successful ones and they should try to be in the success list Hupalo, P. I. (2001).
There are certain red flags to indicate that business is in the verge of failure and close to getting bankrupt. No business would abruptly go down and there will definitely be symptoms. If the entrepreneur has difficulty in paying his bill, market for the product is shrinking and the customer sales is coming down drastically, these are common signs that the company is not performing well. Another red flag is when there is an increase in customer complaints, which clearly goes to show that the business is failing to meet the needs of the customer. The entrepreneur should also ensure that the balance between inventory and sales levels are correct. If the inventory levels tend to climb at a faster rate than what the sales warrant, the company is at a risk of piling up the inventory.
When the business has more work than it can handle is another warning of the enterprise not doing well. A lack of liquidity can also be a cause of business failure. Liquidity is the speed at which an asset can be converted into cash and if the company does not have enough liquid cash at its disposal, it can lead to their downfall. A new business venture that provides...