Business Bankruptcy in America
August 18th, 2007 Subscribe To Our Feed
US bankruptcy statistics are out of control. Statistics show that business failure rates are falling while personal bankruptcies are skyrocketing. But in reality, the opposite is true.
Recently, a research team, including members from the Kauffman Group and Harvard Law School, published the results of a study concluding that the method used to collect US bankruptcy statistics was faulty, that in fact personal bankruptcy rates were lower than reported, and business bankruptcies were much higher because business owners use their own funds for their businesses, so when the business fails, it takes down the owner.
Why is business so shaky? It’s not rocket science, but much of the training we are exposed to is sales/front office concepts, and training in how to change how the owner or manager behaves.
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.
Where does the laundry go that you take to the dry cleaners? When you take something to be repaired, what happens to it? When you go to the airport, how in the world do they sort out all that luggage? How is beautiful furniture crafted in mass quantities?
Think about how small the lobby or customer service area is compared to the enormous size of the area it takes to provide the products or services they offer. Think about the tiny number of people that it takes to man the lobby compared to the vast numbers that it takes to produce and deliver the product or service. In the literature, the largest portion of the business the operation is ignored. Why? Because few of us know what goes on behind that door, accountants included.
Baby-boomers are getting ready to ‘retire’ in staggering numbers. The stock market of the early 90’s and today, along with the real estate market, have made small fortunes for many not-ready-to-retire retirees. The last ten years has seen these folks retiring from their jobs, and selling their California real estate in favor of Montana, Wyoming, and Colorado where twice the home costs half as much. And they have been investing the proceeds into starting a business for the first time.
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.
They are great at capturing historical data, and reporting in a manner that is consistent with generally accepted accounting principals. They can file taxes. They can audit books to ensure that entries are made correctly and that there is no funny business going on. But they shouldn’t be asked for advice on how to run a business.
Small business needs generalists, but our higher education system focuses where their graduates can gain employment. Since small business generally cannot afford college graduates, the university system focuses on graduating specialists who will gain employment in the big companies who can afford them. And, rarely do new business owners have the time to attend college programs.
Why are bankruptcy rates so high? Because good people are resting their hopes and dreams on being able to access the wealth of knowledge about how to do it that should be available by now to everyone who asks. But they don’t know how to ask, and there are few good answers available and for a reasonable price on how to manage the work that goes on in the background of a business.
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