‘Small businesses fail because owners don’t plan ahead’. Is this statement true? In order to answer this question the above statement must be broken up and a few of the words must be examined. It is important to fully understand what constitutes failure in a small business and if more efficient planning could have prevented this failure. When studying about small business failures, one must understand that there is in fact a difference between a business failing and a business going out of business or cease trading. Statistics state that “one in three small firms go out of business during the first twelve months”.
This statement is not a strong one when other statements show that “one small business in three fails in the first three years. ” How can two statements such as the two above be so different when it seems like they are both concentrating on the same subject? The answer to this question is simply because one of the statements is concerning ‘going out of business’ and the other is dealing with a business failing. Therefore there is a difference between ‘failing’ and ‘going out of business’. The second statistic above can be used when considering failure in a small business as is needed in the topical statement of this essay.
Many people assume that the main purpose of a small business can only be achieved if the company still trades and is not terminated. That is the same as saying that a business closing or one which cannot continue to exist has failed. Failure cannot be described like this as sometimes businesses are terminated but they are still deemed successful by their owners. An example of this is when a businessman sells his business. After it is sold the new owner may close it down and use it solely for the reason that it had factories which could be useful to the new owners other business.
In this case the closure of the previous owners business does not mean that his business has failed. If the businessman’s objective was to make a profit and he sold the business for a profit then the business has succeeded even though the business has closed down. Another example which helps explain this point is in the case of a man who is just trying to make enough money in order to retire. This kind of businessman is not trying to make a fortune and therefore his business cannot be considered a failure when it closes down.
It must actually be seen as a success as the closure of the business indicates that the man has enough money to retire and the person has therefore reached his aim. These two cases show that failure in a business can be described as a business that does not reach the aims or objectives of its owner. However in the business world today there are many businesses and a great majority of these business owner’s aims are to make as much money as possible and termination or ceasing to trade to these owners is considered failing.
For the purpose of this essay failure still occurs when an owners aims are not met but it must be stated that probably in most cases owners aims are to maximize profit and therefore in this essay failure is when an owners business does not make their expected profit. Then it must be said that in the majority of cases the termination or closure of a business normally leads to its failure. Planning is also vital when the success and the failure of a small business is concerned.
The examining of the word ‘plan’ brings the subjects of finance, staffing, growth and innovation into the equation. Planning must be done with extreme care in order for a small business to be successful. One problem, which many small businesses often have, is the lack of capital or funds. Small businesses often have a lack of funds, as large banks like larger businesses do not back them. The amount of money needed to start up and keep a business running for example should be known before the company is even set up. If this is not planned properly then the business is likely to fail.
Another problem is that small business owners often tend to take out too much money from their business for personal reasons such as a holiday or the purchasing of a new car. This is a terrible move by an owner as it shows poor planning and the company is more likely to suffer in the future due to not having enough money. If the owner had planned things out before properly then he would have not drawn too much money from his company and would have more money to spend on more important issues such as expansion. Due to small businesses having a lack of capital they are not able to spend adequate amounts of money on research and development.
Research is important as it enables the owner of the business to help to see what may occur with his product in the future. This is done by seeing what other similar companies are doing and also is needed to see the publics demand for a product or service. Research and development (R+D) therefore helps a small business to plan with its finance matters, its growth or expansion and its increase in staffing when necessary. R+D is a major part of planning and this helps to illustrate how vital planning is when failure of a business is being discussed.