Small Business Bankruptcy
According to the U.S. Small Business Administration there is a strong correlation between economic growth and entrepreneurial activity. See Small Business Statistics and Research (2002). And every day thousands of Americans start new businesses that drive jobs and revenues back into their community.
But at the same time, statistics show that 95% of small businesses fail within 5 years; often taking the owners' savings with them, causing a cycle of failure that can blight an entire city, county, state or region. Look at the downward spiral of the past 6 years that has left many without a paycheck. Even efforts by Congress and the President to jump-start the economy have been a bust. What are the newly unemployed doing about it? Some are starting businesses. Some are finding employment at lower pay or in a different field. Many others must seriously consider bankruptcy for the first time.
Since business and personal bankruptcy go hand in hand, it is crucial to understand why small businesses fail, and how to cope when they do. According to the report Financial Difficulties of Small Business and Reasons for Their Failure (SBA 1998), the main reasons that small businesses fail can be lumped into 3 major categories:
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