Startling Statistics: Reasons So Many Businesses Fold Within the First 10 Years

Most people who start their own businesses hear often about the 96% mortality rate that such efforts are subject to. Only 4% of new businesses last even ten years. It’s a depressing number, and it can put entrepreneurs off even trying.

It only puts them off, however, because they don’t understand the figure the way it is meant. These businesses fail not because they have a fundamentally poor business model for lack of sales. The problem lies elsewhere.


The problem is, entrepreneurs love entrepreneurship, but not accounting

When you ask people hoping to start their business what their motivation is, they bring up their love of selling, or their love of a certain kind of product or technology. They also talk about the adventure of making it on their own, and working for themselves. Nearly no one talks about their understanding of how money works. According to a leading bankruptcy attorney in Dayton, Ohio, it is weakness this area that usually brings new businesses to their knees, however.

A lack of understanding of how cash flow works can be fatal to even businesses with full order books. If there are lots of sales, but no funds at exactly the right time to pay salaries, taxes and bills, the business closes.

No one should get into entrepreneurship without personally mastering accounting.


Entrepreneurs also find financial management an acquired taste

One keeps hearing about how big corporations focus closely on cutting fractions of cents off their expenses. They do this for a reason — in many cases, cutting expenses by even one percent can result in a five percent improvement to profitability. Financial management isn’t easy to understand, but it is important. ย Entrepreneurs need to personally learn it, and consult with an expert through management decisions, in addition. Trimming waste is the single most important thing that a business can do to survive, and its financial management that helps the process.

 

Entrepreneurs can have a hard time learning management

In the beginning, Google’s founders had no appreciation for managers, and decided to hire none. After the period of floundering, however, they did decide that managers were important as a way to help engineers function.

Many entrepreneurs have a similar lack of appreciation or lack of competence when it comes to managing people and their business. Building a winning team, managing team relationships, making sure that employees are motivated — all of it can require a special kind of talent, and one needs to train to succeed. Going in an innocent in these skills trips up many entrepreneurs.

The 96% number may appear to indicate that these entrepreneurs, when they fail once, fade away forever. This isn’t what happens, however. Failure isn’t forever. It’s businesses that close down, not entrepreneurs. Real entrepreneurs learn from failure and go on to start new ventures. After a couple of attempts, these entrepreneurs do succeed. The 96% failure rate, then, isn’t meant to show people that they are likely to lose and need not even bother starting. It’s meant to point to the fact that the real winners rarely mind failing over and over.

 

Abigail Reeves likes to write about money matters online in both articles and via discussion forums. She hopes her many years in the finance field can help her give others some useful insights.

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