There are 28 million small businesses in the U.S., according to the SBA. They created 63 percent of new private sector jobs and 42 percent of private sector payroll. Headlines are grabbed by young entrepreneurs who are starting high tech companies, but in reality people over 50 own 51 percent of small businesses, while those between 35-49 own 33 percent and those under 35 own 16 percent. Women own 36 percent of small businesses, 2.3 million businesses are Hispanic-owned, 1.9 million are owned by African-Americans and 1.6 million are Asian-owned.
On Strategy reports that 66 percent of new businesses survive for at least two years, 50 percent make it at least four years, 40 percent make it to six years and one-third make it to 10 years. So why do new businesses fail at such a high rate? The number one reason is running out of money too quickly. When starting a business, you need to plan as if you had no sales for six months and have that money sitting in the bank to cover all the startup issues. Before the recession, business owners could borrow against the equity in their homes, but we don't have that same home equity in 2015. New business startups are rolling the dice and not having as much in the bank, hoping they won't have to face this issue. Established small businesses also face cash flow issues because they may be completing their projects but their clients are paying slower, so payrolls get missed and lights go off. The number two reason why businesses fail is overconfidence in their product that may be ill-timed or is a dud of an idea. If you don't test market first or you are not keeping up with the trends, there is a good chance customers won't purchase your goods. The third reason is a poor pricing strategy where competition may have a cheaper solution. If you must lower your price, there still needs to be enough margins to pay the bills.
Other reasons for business failures include an overdependence on one customer. This country is littered with manufacturing startups that were thrilled to get Walmart as a customer. They put too many eggs in one basket and when Walmart decided to go overseas to knock off their products cheaper, they soon went out of business if Walmart accounted for more than 50 percent of their sales. Small business owners do not know how to say no. Some small business owners promise the world, but going after all the business at one time drains your cash and profitability -- and you may lose sight of quality, delivery time and follow through. If you miss the mark with an inferior product or late delivery, your customers will put you out of business.