10 reasons small businesses fail (nine of which are mentioned in this article), and what entrepreneurs can do to avoid putting an “out of business” sign on the door.
The National Federation of Independent Business (NFIB), a Washington, D.C., advocacy group for small and independent business owners, surveys its members on a monthly basis to get their outlook on the future of small businesses. According to a special edition of its monthly report, Small Business Economic Trends, small business owners’ optimism tumbled to its lowest point since 1993. The New York and Pentagon attacks on September 11 appear to have made owners more pessimistic about the economic future. “This event has truly shaken the system, and only time will tell if that shock does long-term damage,” says NFIB Chief Economist Bill Dunkelberg.
While the suggestions of how to avoid the pitfalls that trap many entrepreneurs are cogent and plausible, the question remains: Why do businesses have such a high failure rate? African American applicants for small-business financing are denied credit twice as often as whites with similar creditworthiness, according to research by the Federal Reserve System. The gap is conspicuous in mortgage lending, where redlining practices have plagued minorities for years. A study by the National Bureau of Economic Research found loan-denial rates of about 27% for whites and about 66% for blacks.
Despite the bleak success rate, some future entrepreneurs are undaunted and still cling to the dream of becoming their own bosses. Charles McNear IV, an undergraduate business student at Temple University in Philadelphia, says that understanding business practices is the key to a booming business.
“I hope to own my own business one day,” McNear says. “But first,