Venture Formation:

Start-Ups

Which Types of Businesses Fail Most Often and Why?

 

 

Most small businesses fail within the first four years of existence. The factors range depending upon the business type. Lawsuits are a common reason for many business failures. BusinessInsurance.org can protect businesses from this universal reason for failure. Other reasons need to be examined according to the business type.

Before examining the type of businesses that fail most often, take a look at the general success of small businesses. According to NFIB, only 39 percent of small businesses are profitable and 30 percent “break even.” The businesses that fail are the ones who continually lose money. Thirty percent fall into this category, so it's important to know which types are the highest risk as you're developing your business plan.

Independent or Family-Owned Restaurants

The failure rate for independent restaurants can be as high as 60 percent. The failure rates of restaurants are typically high because most restaurant owners are skilled in their profession and not necessarily business. An owner’s business ability to raise capital are key factors in deciding whether a business will be successful or not. Restaurants also fail without proper marketing strategies or high traffic locations. Businesses who aren't a household name may have difficulty capturing market share without proper visibility.

Retail Businesses

Retail stores face significant competition and are more apt to fail than the typical small business. There are only so many consumer dollars to go around and not every store will survive if the marketing plan is not sound. The target market must like the business idea and have enough consumer dollars to support the business. The store must also be located in a high traffic area to survive. High traffic areas are often too expensive for small business owners to afford.

Retail requires a significant investment before the business becomes profitable. If the business does not become profitable within a certain number of years, it fails. Common retail stores include: Grocery stores, consumer product stores, and shoe and apparel stores.

Direct Sales

Direct sales also have a higher than average failure rate than other small businesses. Examples of direct sales include companies such as Pampered Chef or Amway. People who participate in these businesses are not required to find significant start-up capital. A small investment is required before business owners can sell.

Many business owners fail in direct sales because they start their businesses for money instead of passion. Business owners in direct sales must have exceptional sales ability, stamina and drive to succeed. Without proper training, business owners become frustrated and may not dedicate the time and effort into the business. Improper training and lack of motivation leads to failure.

Consulting or Business Services

Consultants and coaches often fail because there are no standards in the field. Many companies are reticent to hire coaches and consultants because they cannot prove their ability through licenses or other documentation. Consultants must demonstrate through portfolios they can perform the work as specified. Inexperienced consultants rarely have a chance to succeed. When consultants are not adequately prepared, they may become frustrated trying to land contracts or competing with other consultants in the field.