Why is American Business is Failing?

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Why is American Business is Failing?

US personal bankruptcies appear to be at an all-time high while business bankruptcies appear to be low. It looks like individual's spending habits are out of control, while business is booming, but the stats are wrong.

Last year, in a joint study, the Kauffman Group and Harvard Law School, students proved the statistics to not only be wrong, but to be inverted. They reported that the method used to count personal versus business bankruptcies is biased. The form used to collect the information offers only one box for a borrower to declare whether the bankruptcy is personal or business. It fails to recognize that personal assets are so intermingled with small businesses that, once the business fails, it brings down the individual as well.

Why are business failures so prevalent? The answer is in how we look at business. For instance, the common man has a great deal of contact with the customer service function and possibly the owner in most any small business, but no visibility into what happens beyond that function. Most of the training that is available focuses on the two areas we have ready access to.

Most of the training that is available is either in sales and marketing, or the touchy-feely human relations instruction aimed at changing the attitude and behavior of business owners. But there is very little in the way of preparation as to how to manage the internal operations of the business.

Questions like, what is the best way to set up a manufacturing facility? How many employees should it take to complete a certain number of tasks in a day? And, how do I use employee complaints to improve my business? remain unanswered.

When one compares the number of employees or the square footage involved in the background operations, with the number of employees and square footage devoted to customer service and sales, it is easy to see how large of a problem this might be.

The baby-boomers who are not quite ready to retire are selling their expensive real estate, moving to less expensive areas, and determining to own their own businesses as a means to support their future retirement. Most of these adventurers have never before owned a business.

Without the mentor that came with the family business years ago, these businesses are destined for failure. Bankruptcy statistics for the last ten years are bearing this out.

CPAs generally have business degrees, so does that make them the natural mentor replacements? No. Generally speaking, these folks don't have practical experience running businesses other than their own.

Accountants will always make sure that the historical data is posted as it should be so the taxpayer can report to the government in a consistent manner, according to GAAP. But the operation of a business depends on looking into the future, and accountants who try to help business owners make decisions for the future often stumble.

College textbooks are full of good information about the operation of a business, however, small business owners rarely have the time to attend college classes. And university programs tend to focus on training students in that in which they can become employed. Since small businesses typically don't have the resources to hire graduates, schools turn out specialists, rather than the generalist required by small business.

So, what is the biggest reason that small businesses fail? It's because the people who know what goes on behind the door, the experts in internal operations, work for big business making big bucks, and the small business owner is left out in the cold. The information is not available to them that would help their business become stronger and more competitive. I will get a thousand arguments from folks out there, but I will challenge that most of those who argue with me will also not know how to improve what goes on behind the door.