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-UE
90% of small businesses fail...
...but it's not for the reasons people generally seem to think.
I live in a small neighborhood with an area designated for businesses. No chains are allowed; just start-ups. And over the last five years, I've seen a lot of them come and go, and a few of them stick around. Why, then, do the ones that fail fail? It's not because of the economy. It's not because of competition. It's pretty much invariably one reason: the owners having no idea what the hell they're doing.
For example, take restaurants. There have probably been 20 or 30 opened here while I've been here, and most of them vanish just as quickly as they spring up. Four of them still exist. And of the ones that failed, every single one had too few tables. For any restaurant, there's a number of tables needed to make a profit. This isn't some extremely obscure fact; it's something you can just look up. It should be a basic part of starting a business. But in my experience, people starting small businesses mostly just don't look into stuff like that, so they don't know what they have to do to stay afloat. So they fail. And it's really sad, because some of the businesses are quite nice, and if the owners had just consulted an accountant or something, they'd have done fine.
(rant triggered by a conversation with some people from around town about how the local toy store is eating through its owner's retirement fund)
Comments
Okay, what would you recommend to save that toy store?
The problem with the toy store might just be that there wasn't enough demand for even a decent one to be profitable in the area.
Find something more expensive to stock. That store's problem is that it's selling cheap items, and as such, the average customer only brings a few dollars of profit to the store, so even if they get a decent number of customers, they don't make enough profit to pay for the rent, utilities, etc. Stocking items with a larger profit margin would fix that.
^That's part of it too, I think.
Failing to prepare is preparing to fail, is how the saying goes
The restaurant trade is pretty notorious for a high failure rate in general, even at the top end, because going to a restaurant is completely discretionary spending. If people aren't feeling as wealthy, they can easily stay in or go somewhere cheaper, so you're very vulnerable to economic downturns.
However, part of it is also due to people starting them because they like cooking/food and not thinking through the business side, as INUH says. The same's probably true of other shops - you get a lot of hobbyists. To actually make money, sadly, you often have to water down your devotion to the True Cause of traditional toys or French cooking or whatever, because sometimes people actually want to buy crap.
Depends on the circumstances, especially the location (which is part of planning). For stores here, there's absolutely no chance of that happening.
There's also online shopping to consider. Nowadays even if you're the only place in a hundred mile radius that stocks what someone next door wants, they have other options if the way you do business doesn't manage to appeal to them.