Why Some Small Businesses Fail Essay

2026 words - 8 pages

Why Some Small Businesses Fail

It is hard to measure the size of a business. According to The
Department of Trade and Industry (DTI), an SME can be described as a
business that employs between 0-49 people. However a company such as a
Chemical Plant may employ less than 49 people but have a turnover of
£20 million. So according to the number of employees, the DTI would
class it as a small business. However, according to the level of
turnover it could be classed as a large business. The size of the firm
is generally measured by the amount employed1.

The amount of SME’s is forever increasing. There are many reasons for
the increase, such as; improved technology, ability to sub-contract
part of business and public sector being encouraged to become smaller.
There is also Push and Pull factors that help people come to the
decision to be self-employed. “Push factors” include people who are
unemployed or made redundant decide to venture on their own. This may
be simply starting their own window cleaning service. Another “push
factor” is the “Pratt factor” this is when an employee finds himself
working for someone else less talented and wonders ‘why am I working
for you?’ so decides to start up on his own.

The amount of SME’s is forever increasing. There are many reasons for
the increase, such as; improved technology, ability to sub-contract
part of business and public sector being encouraged to become smaller.
There is also Push and Pull factors that help people come to the
decision to be self-employed. “Push factors” include people who are
unemployed or made redundant decide to venture on their own. This may
be simply starting their own window cleaning service. Another “push
factor” is the “Pratt factor” this is when an employee finds himself
working for someone else less talented and wonders ‘why am I working
for you?’ so decides to start up on his own.

“Pull factors” include peoples increasing desires to exploit an
opportunity, turning their hobby into a business, the motivation to
work independently and when people become older they sometimes inherit
money; they sometimes put this money into a business venture they
perhaps previously couldn’t afford.

The failure rate for small businesses is very high. The probability
that your new business will make it past the third year is less than
25%. In other words, over three-quarters of entrepreneurial dreams
land up as a distressing memory. Statistics are however, sometimes
deceiving. Many start-ups merge with other ventures or act as a launch
pad for other business activities. However, the percent of small
businesses that fail is still extremely high.

When small businesses fail the owners are usually quick to blame the
government or the economy. However many people have actually made
their fortunes during recessions or tough times, whereas others have
failed just as easily in boom times. In fact according to a recent
survey outside influences such as...

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