What To Do If Your Business Fails

According to the Small Business Administration, new businesses have a 34 percent chance of failing within two years and half are not operating in four years. 60 percent of businesses fail in six years (Scarborough and Zimmerer 12). I know people do not set out to fail this statistics show that it does happen.

What is business failure? John Watson and Jim E. Everett authors of "Do Small Businesses Have High Failure Rates", say that experts tend not to agree what is the clear definition of business failure. Most of society believes that it is when a business files for a form of bankruptcy. However others believe that it can be "bankruptcy, merger, or acquisition. Still others argue that failure occurs when a firm does not meet responsibilities to stakeholders of the organization."

The South Dakota State University Bulletin states students in the Entrepreneurial minor will "have the opportunity to increase their knowledge of skills needed to start, own, and/or operate a business." Part of owning a business is the chance of failure. In the syllabus for Entrepreneurship II one of the course objectives is to learn the challenges and rewards of entrepreneurship (Behrend). The class Entrepreneurship II needs to discuss what to do if a business fails because if a business does fail students need to know how to deal with the failure.

Being prepared for failure is a practical part of starting a business. The statistics stated earlier show that business failure is very possible, and it is hard to see why learning to deal with business failure is not discussed in the Entrepreneurship II class. If the South Dakota State University wants students to be prepared for the real world, learning about business failure would be a big step. Also if we understood business failure students could learn from it and maybe in future be able to deal with it better.

One very important topic in business failure is bankruptcy. Bankruptcy is the the choice that many people make to deal with the failure. Entrepreneurs who businesses fail often have no other choice but to declare bankruptcy under one of three provisions: Chapter 7, Chapter 11, and Chapter 13.

Norman M. Scarborough and Thomas W. Zimmerer state, the most common type of bankruptcy is Chapter 7. This addresses liquidation and is available to both individual and business debtors. It aims at achieving a fair distribution to creditors of whatever non-exempt property the debtor has and to give the individual debtor a fresh start through the discharge in bankruptcy. Chapter 7 bankruptcy is also known as a "straight bankruptcy" or "liquidation bankruptcy" because the trustee gathers and sells your nonexempt assets and then distributes the proceeds to your creditors in accordance with the provisions of the bankruptcy code. Not every piece of property is subject to court attachment. However, some debts cannot be discharged in a bankruptcy proceeding (701).

According to Scarborough and Zimmerer another option is Chapter 11 bankruptcy. This chapter addresses reorganization and is available for both individual and business debtors. The purpose of Chapter 11 is to rehabilitate a business as a going concern or reorganize an individual's finances. The Chapter 11 debtor is given a fresh start through the binding effect on all concerned of the order of confirmation of a reorganization plan. A bankrupt company might use Chapter 11 to reorganize its business and try to become profitable again. Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court (701-702).

The last type of bankruptcy discussed by Scarborough and Zimmerer is Chapter 13. This Chapter is used as a rehabilitation vehicle for an individual with regular income whose debts do not exceed specified amounts, typically used to budget some of the debtor's future earnings under a plan through which creditors are paid in whole or in part. Chapter 13 bankruptcy lets you rearrange your financial affairs, repay a portion of your debts and put yourself back on your financial feet (702).

However, bankruptcy is not the only choice one has if a business fails. In an interview with my instructor for Entrepreneurship II, Don Behrend said that going to the people that one owes money to and asking them to except less then you owe them might be a good idea. Don also said that most people will negotiated some because even though they might be getting less then you owe them at least you are paying them something. Many people find other ways to deal with the financial failure, but these two ideas are two of the most common ways in dealing with a business failing.

There is another part of dealing with business failure other then the financial area. The area is dealing with failing emotionally. When a business fails many people may not know what to do with themselves. However, just because a person's business fails it does not mean that they are a failure (Singh). Another important thing to remember is that business failure does not always occur because of problems in the business. The failure can happen because of actions of other people that the business depends on. Some of those people could be suppliers, customers, or other businesses(Small Business Failure).

Karen Axelton, the author of "Bouncing Back", states that the death of a business is like the death of a loved one. Dealing with this grief can be a long process. Every person will have a different way of dealing with the grief. It is also important to remember that the grief process will take time. There is no set time that a person can deal with business failure.

Axelton also states, because entrepreneurs put so much of themselves into their business, failure is not just professional, it is personal. To deal with the new "downtime" they should spend more time with their personal life. This could be anything from church, family, children or any other hobbies. There is not one thing that works for everyone; it is best to do what works personally.

When people start identifying themselves with their failure, they loose confidence and may think that they are losers. The more they think the more they grieve and the more unconfident they feel. When dealing with the grief remember that even though your idea may have not worked out it does not say that you cannot be successful later. Having a dream and brining it to life it is something to be proud of. Hopefully while grieving people can learn where they failed and correct it in the rest of their life (Singh).

When a business fails the owner needs to figure out what they will do with their life from that point on. According to "Is Business Failure the End?", there are two types of entrepreneurs after