Unfortunately, there is no surefire way to entirely fail-proof a business. As referenced in Forbes, the Wall Street Journal, Gallup, and countless other sources, small business failure rates range from 30-80% depending on the industry and length of time considered.
What Causes Businesses to Fail
While the actual percentage of businesses that fail varies according to industry and length of time in business, there are common threads of what causes businesses to close their doors. Gary Brownlee of the Indiana Small Business Development Center reported that the number one cause for a business’ demise was incompetence. Factors contributing to this cause included:
- Overextending by living beyond the means of the income generated by the business
- Poor planning
- Emotional pricing products or services
- Unpaid taxes
- Inadequate information regarding financing requirements
- Record-keeping skills below par for running a business
- Uninformed decisions involving pricing related to the industry
These factors are preventable by making sound decisions and investments at the start of a business. Researching how to properly manage and maintain these factors is certainly one of the most important investments a small business owner or start-up can make. Specifically, when it comes to planning a business the old saying by Benjamin Franklin, “An ounce of prevention is worth a pound of cure,” is true. Imagine how much pain and heartache can be avoided with a little preventative maintenance up front.
Poor Legal Planning Leads to Business Disputes
As mentioned above, one a major contributor to business failure is poor planning. This includes not just business planning, but also legal planning. We have seen many small businesses fail as a result of disputes or conflicts between shareholders or partners. Hiring a qualified business attorney from the outset is one of the most sound investments that can be made in starting a business. Legal advice, well-conceived and thoughtfully drafted agreements, and proper documentation of the legal structure of a business will help prevent disputes or conflicts in the future.
If you are a small business owner, or considering starting a business, contact the experienced business litigation attorneys at Atlanta based Brownstein & Nguyen.
