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Home Business Possibilities 8
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Reprinted with permission from Janet Attard* Copyright 2004. All rights reserved.
Do many home businesses fail?
There are no accurate statistics on failure rates for home businesses. Although statistics for all small businesses show close to 50 percent disappear within 5 years (either through failure or because they're bought out), such statistics don't really apply to home businesses.
The reason is that many home businesses are run from a corner of the family checkbook as well as a corner of the family den. Having relatively low start-up costs, no business rent to pay each month and no payroll to meet each week, few home businesses ever really fail. Instead, they fade away, as the owner shifts his or her focus to other income-producing activities. If one business idea doesn't work out, the owner of a home business may try some other income-producing activity. Thus, the individual selling decorative wreaths may switch to selling jewelry or collectibles, a seamstress may go into the image-consulting business, or a computer consultant might start a software publishing company. This is particularly true when a business is operated as a moonlight operation, provides a second income for a family, and/or is supplemented with income from part-time or temporary employment.
Finally, when a home business doesn't work out, equipment and supplies purchased for the business can often be used for other purposes. The computer that was bought to run a business may wind up being used by one or more members of a household to prepare homework or to acquire word processing, spreadsheet, or other computer skills needed to get a job. Supplies, samples, or inventory may also get used up by family, given away as gifts, sold in online auctions, or packed up to await sale at the next neighborhood garage sale or a local flea market.
Still, there are many home businesses that do fail because they made expensive purchases they can't use, bought too much inventory, or can't find customers. So look carefully before you leap.
Are there any common traits among unsuccessful home businesses?
An SBA study on small business bankruptcy found that the top three reasons for business failure were:
- changing outside conditions such as competition, rent increases, or other costs of doing business
- inadequate financing
- inside conditions such as mismanagement, bad location, loss of major clients
Some home businesses fall prey to those problems. However, even when cash runs out, the underlying reason for the disintegration of a home business can often be attributed to one or more of these factors:
- lack of owner enthusiasm and dedication
- lack of knowledge of the business or industry
- failure to get to know the customer and/or make contacts
- lack of self-confidence
- no market for the products or services
- the product or service isn't profitable to produce and sell
- the product or service cannot compete in price and/or quality to comparable items in the marketplace.
- Poor quality goods or services
- owner's focus is on making money with little or no regard for customer service or product quality.
- no real product or service is being offered
- lack of professionalism in dealing with and corresponding with customers
- no clear-cut plans
- need for cash
- inability to compete against bigger or more established companies
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