Sunday, November 19, 2017

Small Business Failures Merit More Of Our Attention

Small Business Failures Merit Our Attention
It is very important that small business failures receive a lot more attention then 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 when a small business is formed. This includes its effect on the economy both long and short term. What many people fail to realize is that most business start-ups having a very short lifespan of just months or around a year, this means the economy experiences a short-term burst of spending that is quickly followed by a slew of long-term negatives.

While America claims to want new business formation as a society we are weak in creating policies that support them. We should not underestimate the role new government regulations or Amazon's exploitation of brick and mortar stores have played in undermining their success. In fact not only has government been complicit in allowing small businesses to be destroyed but in many ways they even subsidize Amazon. Today startups also face the harsh reality that many major retailers plan closing stores. While many people see this as creating new opportunities down the road, short term it is problematic. It is difficult enough for a new venture to turn the corner towards making a profit but semi loads of discounted merchandise flooding a market as a closing outlet liquidates its inventory only adds to the challenge. The pressure resulting from stores closing tends to trickle down affecting all sectors of an economy reducing overall demand for services and casting a wet blanket on demand at the same time pushing down prices.

The Ugly Reality Is Most Businesses Fail
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 and can contain some rather mean unintended consequences. When a new business opens or is formed generally a fair amount of money is spent or invested. The source of this money is often the savings or loans from the owner, their family or close friends. This explosion of spending that accompanies opening a new business stimulates the general economy. Money spent on fixtures, signage, leasehold improvements, services, and inventory help create jobs, but as stated earlier a dark side exists to this entrepreneurial adventure and it is exposed if the business fails to achieve economic success. When a business fails people often get hurt.

I'm not talking about hurt feelings or simply feeling sad, the ramifications reach far deeper. 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 often several 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 monies promised, 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 during a business venture and have exhausted their savings and that is a cost and negative many forget. Whether they retire early without savings or need medical help society can be forced to step in. Long hours of hard work and sacrifice is only part of the demands and burdens asked of today's entrepreneurs, in fact just going down this path poses its own risk.

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