Sunday, March 10, 2013

Small Business Failures

Small Business Failures Merit Attention
Small business failures should receive a lot more attention than they do, we will see a lot of these in the near future as people have started down this path when unable to find a job. Small business is hard, going into business is risky, and many people are not up to the task. As a property owner that leases space to many start-ups, I have a keen interest and knowledge of the microeconomics that occur. Just as important is the effect, long and short term on the economy. With most business start-ups having a very short lifespan of just months or around a year, the short-term burst of spending is quickly followed by the longer term negatives.

Formation of new businesses is very important to America and the economy, but a dark side does exist. The study of the anatomy of a failed business can be very enlightening. When a new business opens or is formed generally a fair amount of money is spent or invested, this often comes from the savings or loans from the owner, their family or close friends. This stimulates the general economy. Money spent on fixtures, leasehold improvements, services, and inventory help create jobs, but a dark side exists to this entrepreneurial adventure and that is when the business fails to achieve economic success people often get hurt.

I'm not talking about hut feelings and or even just feeling sad, I'm talking serious pain of a financial nature. Contracts go unfulfilled, bills are not paid. Suppliers must take write-offs, and landlords after only a few months rent and more months that are never paid, usually get back buildings negatively altered, by unsophisticated novices doing shoddy work. Utility bills go unpaid and must be written off, those who have sold services never collect yet suffer the upfront cost and investment. The fixtures and inventory of these failed enterprises often sold at a discount or trashed become underutilized, or dampen a competitor's future sales.

And last but not least, let us return to the psychological damage that follows in the wake of a business failure. This often turns into shame as they dodge those they let down, and is often followed by bankruptcy, destruction of credit, broken families, divorce, loss of one's home. An entrepreneur who fails often sees years of hard work and all or most of their retirement savings vanishing into the land of broken dreams. In the end, the taxpayer and government may end up supporting those who fail when they retire early or need medical help, and that is a cost and negative many forget. Long hours of hard work and sacrifice is only part of the demands and burdens asked by today's entrepreneurs.

Footnote; This is not the first article I have written on the state of small business in America. I posted in January 2012 a piece about how few Americans really go down this difficult path, it was titled,  "Only A Few Are Entrepreneurs"


1 comment:

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