Small business owners don't take vacation, not because they don't want to travel or relax or explore new adventures; they don't take vacations because they are scared to death their business will fall apart. Fortune recently reported half of small business owners will take no vacation this year. Of the half that do go on vacation, 61 percent of them go for only a week, which is half of what the average US employee takes each year. Also, when a small business owner actually takes a vacation, 67 percent of them check in with work at least once a day and only 15 percent completely disconnect from their business.
Gallup reported earlier this year that the total number of new business start-ups and business closures per year, known as "the birth and death rates of American companies," just crossed to the bad for the first time since this measurement began. Annually, 400,000 new businesses are being born nationwide, while 470,000 are dying each year across the country. Up until the recession began, startups outpaced business failures by 100,000 per year. If small businesses continue to die at this pace, disastrous consequences for our economy and way of life are right around the corner. Our Main Street American businesses still find it difficult to borrow the funds they need to expand their business. If you read the news, it says bank loans are easier to come by, but I have not talked to even one of our customers who tell me banks are happy to help them out during these difficult times.
So why are businesses failing at such a high rate today? According to MSN the number one reason is running out of money too quickly. When starting a business, you need to plan as if you had no sales for six months and have that money sitting in the bank to cover all the startup issues. Because in today's world, where before the recession, business owners could borrow against the equity in their homes, we don't have that same home equity today; new business startups are rolling the dice and not having as much in the bank, hoping they won't have to face this issue. Larger businesses also face cash flow issues because they may be completing their projects but their clients are paying slower, so payrolls get missed and lights go off. Thirty-seven percent of experienced business owners sometimes fall short of cash according to MSN. The number two reason why businesses fail is overconfidence in their product that may be ill-timed or is a dud of an idea. So if you don't test market first or you are not keeping up with the trends, there is a good chance customers won't purchase your goods. And the third reason is a poor pricing strategy where competition may have a cheaper solution. Then if you must lower your price, there still needs to be enough margins to pay the bills.
How can we reverse this trend of more businesses dying than being born? One way is through a new program, "Big Ideas for Small Business," that was launched last year by The National League of Cities in partnership with the City of Chicago's Innovation Delivery Team. They have produced a toolkit that helps local leaders create ecosystems that supports small business growth with city resources and provides business owners with access to new sources of capital. Another resource is SCORE (Service Corps of Retired Executives), which has 364 chapters and 13,000 volunteers, whose mission is to foster small business communities through mentoring and education. These are successful business owners who are giving back to their communities. The NFIB (National Federation of Independent Businesses), of which my company is a member, is a great resource for information and interaction with other small businesses. And at DollarDays on our Facebook page, we are giving away $5,000 worth of products during October to small businesses to get them ready for fourth quarter sales, so please nominate a small business in your town that deserves our help.
This lopsided failure rate of small businesses is a concern to every community. For our cities to recently jump in and realize this is a local issue that must be solved with "boots on the ground," reinforces that these entrepreneurs are not in this battle alone, they have their "village" looking out for them. This is a good start to reverse our small business death trend. But it also takes individuals in our communities spending in small businesses. These "buy local" campaigns truly make a difference. For each $100 spent at local businesses, $45 of secondary local spending is done, compared to $14 for big chains. This multiplier effect trickles down and has a dramatic influence in keeping our local businesses alive. America has been great since our independence because on the back of small businesses we have built an exceptional agricultural, industrial and intellectual powerhouse economy. We can't afford to let these small businesses die, because just about every great economic accomplishment in our country started in the mind of an entrepreneur.