Why Do Small Businesses Fail Analysing the Reasons for their High Rate Essay

Why Do Small Businesses Fail Analysing the Reasons for their High Rate of Failure in the UK - Essay Example Studies show that by the third year of starting up, at least half of them close down. While there are external factors such as inadequate funding that leads to this, part of the reason is also internal - such as the work culture, the marketing being poor, the location not being right, the product being ahead or behind its times, and so on. Therefore, for an entrepreneur to succeed, it is essential that they come with not only a product/service plan but also its business plan and a back up in case the first one does not work. In the first place, there is a lot of concern that not many innovative ideas find the light of the day in the UK. According to a study commissioned by NESTA, an early stage investor in innovative and creative businesses, 80% of innovative ideas do not see the light of the day as knowledge of how to go about it, lack of funds and lack of time. However, the biggest concern was the fear of failure - what if the venture failed According to a Cambridge University's Centre for Business Research study (Fielding2, 2006) based on three surveys of more than 1,000 SMEs conducted in 1991, 1997 and 2004, SME survival rates fell from 59% to 54% over the same period. Between 1991 and 1997, 28% of the companies in the survey failed; between 1997 and 2004, that proportion rose to 32%. Among its more worrying findings, the research reveals a significant decline since 1997 in the proportion of SMEs carrying out research and development activities - from 52% to 38% - even though R&D investment is considered vital to this sector of the UK economy. Such statistics would clearly deter anyone from venturing into setting up a new business. Supporting this is the CBR finding that, since 1997, research and development activities of the small and medium enterprises fell from 52% to 38% despite it being considered important by the UK government. According to Finfacts Ireland3 website: The decline in the UK's early stage entrepreneurship rate, from 6.2 per cent to 5.8 per cent, was partly attributed to the growth in jobs in the financial services sector, where the lure of high wages was attracting many would-be entrepreneurs. According to a press release on the Small Business Service4 website: In 2005, there were 177,900 registrations and 152,900 de-registrations, resulting in an increase of 25,000 (1.4 per cent) in the stock of VAT-registered enterprises during 2005. Chapter 2 Why Start-Up The industry is already filled with businesses - large, medium and small - offering products and services right from a safety pin to aeroplane. Then why another company Is it merely the entrepreneurial spirit or is there truly something new on offer Unless the entrepreneur can truly answer this question, there may really be no point in starting a new business. For, several times, it may be the same idea in an old bottle. For instance, an idea may be approached from