Why Businesses Succeed (or Fail!)

The hearts of entrepreneurs are normally filled with optimism, faith in their idea and plan for the business, and above all, confidence. One would think that if a person set out to start any sort of business, and had such attitudes, their chances for success would be excellent.

However, information supplied by the Small Business Administration (SBA) Office of Advocacy in March 2014 indicate the about 10 to 12 percent of firms with employees open each year, and about 10 to 12 percent close. They go on to report that about half of all new establishments survive five years or more and about one-third survive for 10 years or more, that (as one would expect) the probability of survival increases with time, and that these statistics alter little over time.

Why the failures? It would be natural to think that here in America, with all the entrepreneurial spirit which built the country and made it great, failure would be rare.

Early in my career, someone told me that “most new businesses fail for one or both of two major reasons: (1) the owner doesn’t know what he is doing, and/or (2) the business was begun with insufficient capital.” It is clear that it would take a lot of luck to overcome either of these situations.

There are many other reasons a new business may not have a very long lifespan. Chief among these would be lack of accurate, current financial information. Often, if there is any financial data, the business owner may have little if any understanding or assistance in understanding what it means.

It is at this point that a CPA can be of great help to the would-be entrepreneur. The CPA can discuss these and other issues when the business is still in the planning stages. Having advice and counsel from someone who has seen many businesses succeed, and also invariably seen some fail, can set the new business owner on the right path toward success, and avoid the disappointment of failure.