Introduction
Several criteria have been used in an effort to classify a business as small or large. This has been an area of contention, but different individuals and organizations have classified businesses differently. Some classify a business according to the workforce it has, its management structure, and the worth, in terms of investment and assets, it may have. On the other hand, others have classified businesses according to the total sales and profits that are realized from the business. A smaller number of people or organizations, though, may classify a business by the physical attributes it may have, for example, its premises or the socioeconomic status of the place the business is located (Schaefer, 2000).
What is the current small business start-up success and failure rate in the U.S. market?
Irrespective of the size of a business, success is usually the main point of focus when starting a business. However, the types and magnitudes of advantages and drawbacks vary according to the business size. One advantage of a small business might be a major drawback to a large business. Research conducted by the Small Business Administration (SBA) indicates that “two-thirds of new employer establishments survive at least two years, and forty-four percent survive at least four years” (Schaefer, 2000). This is a bit encouraging because it has always been believed and estimated that less than 35% of businesses survive. It is therefore of utmost importance to not undertake any business venture without the correct preparation. The reasons why most businesses fail include the motivation behind starting, the know-how that the sole proprietor or partners may have, where the business is located, and how management or planning is done. Over planning and insufficient capital can also be a major cause for a business venture to collapse (Hatten, 2008).
Advertising, specifically by means of the internet, is one thing that one cannot leave out if one’s business has to succeed in the United States of America. Statistics given by the Census Bureau show that the number of people who consistently use the internet as their major source of basic information is currently at 70% and that this value is rising every day. Over 70 billion people make inquiries and purchases via the internet (Hatten, 2008). It would therefore be suicidal for a business in America not to have a neat, captivating and professional website. Research conducted by the Small Business Administration (SBA) shows that in the year 2008, “there were 627,200 new businesses, 595,600 business closures, and 43,546 bankruptcies” and that “seven out of 10 new employer firms survive at least two years, and about half survive five years” (Schaefer, 2000).
What are the red flags for a small business related to business failure and bankruptcy?
It has been proved that many business owners are found to be in a state of denial, even when they are told or when they suspect that their business is falling apart. This is an ‘ostrich algorithm’ in which the owners’ bury their heads in the sand’ so as to avoid an oncoming problem, and they forget that such a mechanism does not make the problem cease to be a reality (Hatten, 2008). The major reason why a business collapses is that the owner or the management undertakes schemes that are way beyond the business’ capital. Most small business owners will pounce on a big opportunity, and they proceed to undertake it without even caring to at least outsource professional advisors and consultants before making any major decision (Hatten, 2008).
One of the first warning signs to show that a business is failing is a sudden lack of enough cash to cover the business’ expenditure. This is directly linked to another sign of a drop in the number of customers the business has (Hatten, 2008). Another sign, which is easily misinterpreted and ignored, is the sudden or extremely fast growth of the business! It may look awkward to say so, but sudden growth translates to overworking of employees, the need for more infrastructures, and for more professional and expensive services, which may not be available in the business presently. A failing business will divert from the main point of focus and will start spreading its branches into all directions, even those that are not related in any way to the business (Schaefer, 2000).
What are the precautions the owner and management team will take to ensure the success of the new venture?
Some precautions that should be taken include purchasing good insurance coverage; a small business may not be able to pick up after some severe losses without the aid of an insurance company. The business management should also invest in very professional accounts and record-keeping crew- this will go a long way in preventing some causes of bankruptcy. The management should also see to it that the business complies with the current zoning and governing rules. This is so as to avoid tainting the business name and to avoid unnecessary penalties (Schaefer, 2000).
How can the investors and lenders be protected from financial loss in the new venture?
The easiest way for investors and lenders to have protection from financial loss in any new venture is to obtain loan protection from suitable organizations. This will ensure that the business will be in a position to get loans and finance without fear and limitations. Loan protection will also ensure that investors and lenders do not suffer in case of bankruptcy (Hatten, 2008).
Discuss the business succession plan to ensure that the new venture continues to exist
The business succession plan should be compliant with the currently existing laws that govern the taxation and inheritance of businesses. Care should be taken to ensure that the right person to run the business successfully should be chosen. Unnecessary expenses can be avoided by being aware and by considering the exemptions that accompany the inheritance of a business by a marriage partner or a beneficiary. The plan should also clearly indicate the financial goals set to be accomplished by the time of succession. This is a motivating factor for the business (Hatten, 2008).
References:
Hatten, T. S. (2008). Small business management: entrepreneurship and beyond. London: Cengage Learning. 585 pages.
Schaefer, P. (2000). The Seven Pitfalls of Business Failure. Web.