re: Why do so many small businesses fail?

I would venture to say that most fail to do the proper research and planning beforehand.

Starting is a business is more than just putting up a sign and expecting people to walk through the doors.

A LOT of homework needs to be done if you want to be successful. Even if you have a good idea or product.

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It takes a while for a small business to build up cash reserves as well

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In some cases, even if you have cash reserves, it only takes a few (If not one) customers to default or cancel on you and...poof you're done.

hell, I've seen healthy businesses carrying heavy AR that fail.

So 20% of businesses fail between years 5 and 10.

If you make it to year 5, by which point half have failed, you pretty much know the basics of how to run a business.

The ones that fail between years 5 and 10, to me, usually have one of three things happen:

1) A significant cost increase that they are not able to handle or pass along. A lot of people sign a commercial lease for 5 years, and the landlord wants an insane rent increase that they can't afford, yet the costs of moving and starting over in a new spot are also too high.

2) Competition has caught up to them and they no longer enjoy the market share / pricing power they once did.

3) Their services / products have become stale in the marketplace, and they are unable to adjust and create new, better things.

#2 happened to a business that a family member of mine is involved with. They opened a location, it did awesome. About a year later, they opened a second location about 15 miles away from the first. They still did great and the places were far enough apart that the second spot didn't steal from the first one. But within a couple of years, 7 competing companies had opened up in their area. It became saturated. In year 6, when the second location had their lease come up for renewal, they decided to close that location and go back to one spot. Now they are in year 8 and while they are doing ok, the one location still isn't doing as well as it did when they first opened 8 years ago. The number of competitors has gone from 7 to 3, though.

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- failing to scale properly
- failing to pivot/adjust to market demands (adjust offerings)

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really close to my experience. I am one of 4 that started/runs a company that is now 20 years in. rough spots have been for us:

hiring
scaling
training
stomach slow years especially when new hires are made.

Random viruses

I can’t speak to small businesses like restaurants but I do know a lot about what causes small excavation businesses fail.

1. Buying too Equipmemt much too fast. By this I mean they buy several hundreds of thousands of dollars worth of earthmoving equipment then only to later realize their income stream won’t allow them to make their payments.

And

2. Not properly maintaining their Equipmemt. By this I mean they’ll spend $200-$300 thousand on a machine then fail to do simple things like greasing it daily or cleaning the mud out of the undercarriage. Or even worse they don’t perform regular PM services or take fluid samples. The result of all this is unscheduled downtime and massive repair bills they can’t afford. What’s really bad is this sort of thing happens all the time and is totally avoidable.

The demand changes over five years. I don't want to buy a pager or typewriter. Those small businesses that sold them probably did on for 6or 7 years and then close doors. Most business can't or don't change with the times.

Easy answer...Most know the trade/service very well...But they do not know how to run a business...Simple as that. Just because you are an excellent mechanic doesn't mean you will make an excellent mechanic shop owner. I see it all the time.

you sound like you've never owned a business.

Wrong.

I should have added in an industry you already have experience with.

An existing partnership ....An employee that’s learned the business, somebody ready to retire ect ect