Why Small Businesses REALLY Fail. (The Answer May Surprise You.)

You know the statistic: most small businesses fail in the first 5 years. Many businesses come to us when they have no one else to turn to. We’ve worked with nearly 10,000 small businesses and resolved over 35,000 debts. With all that experience, we get asked one question a lot.

“Why do so many small businesses fail?”

It’s not so much about intelligence.  Some of the smartest people in the world have literally killed their businesses. It’s not all about the money either. Some of the best financed and wealthiest companies have also failed.  Is it bad luck? Well, to a large extent, yes.

Virtually every business we have turned around has been the victim of some type of misfortune. Bad luck fell upon them. But relying on luck, or hope, to turn your business back around is possibly the worst strategy you can take because it’s no strategy at all. Depending on good luck is like putting your family’s future down on a roulette wheel.

The reason most businesses fail is because the owners’ didn’t do what needed to be done when they needed to do it.  They were paralyzed - unsure of what to do next - afraid to make another wrong move because it could be their last. So they chose not to do anything and basically sealed their fate.

So what stopped them from doing the right thing for their businesses?

Pride, embarrassment or nowhere to turn.

Everyone makes mistakes. It doesn’t matter how big or small you are.
Admitting that you have a serious debt problem feels like you are admitting failure. But that’s not true. A failure is a person who fails to take action knowing that each passing day puts them in a worse financial situation. A failure is one who doesn’t do what needs to be done just because they are afraid to make the wrong decision.

When business owners get desperate, some try to cover up their debts with more loans.
Getting a loan with affordable terms is anything but easy:

The banks have tightened their lending requirements - excellent credit is not always enough to be approved for a loan.

Homes have dropped in value and depleted any equity that a business owner could turn into cash

Many business owners simply lack the collateral needed to obtain a loan.

When they can’t get loans, we see business owners borrow from friends and family. When that runs out, they wipe out their savings, children’s college funds and retirement accounts in months. They have no nest egg, safety net or back up plan. Eventually, bills start getting paid late and creditors start calling. That’s when it’s time to negotiate. Negotiating your own debts could be a fatal mistake for your business - if you don’t know the pitfalls and traps hidden in every communication you have with your creditors.

We actually have a free guide that covers some of the key mistakes:

“The 27 Biggest Mistakes to Avoid When Negotiating Business Debts”

Each crisis offers a business owner the chance to respond or react. When debts begin to rise, they can respond by managing expenses or react by borrowing more money.  When the debts become unmanageable, they can respond by taking their creditors seriously or they can react by underestimating them. Most creditors are organized, very well-funded and prepared to dowhatever it takes to collect what they’re owed. If they need help collecting, they hire a collection agency. If that doesn’t work, they hire another one. If that doesn’t work, they can hire a law firm and sue. It’s not even close to a fair fight.

These are rough times to own a business. There is little margin for error. When your business is facing a crisis, timing is everything. Deciding what needs to be done, and doing it, is critical. Wait too long to take action and before you know it, it’s over.  Responding to business problems in a timely manner can mean the difference between failure and success.

Corporate Turnaround, founded in 1998, has an A+ rating with the Better Business Bureau and is the official debt management partner of ChamberofCommerce.com. Corporate Turnaround has resolved over 35,000 debts, worked with over 9,000 businesses and resolved over $300 million of their clients’ debts.