The Flaws of Figuring Failure

By Chris Wendel
A few days ago I was reading through a newsletter sent out by a local township to its taxpayers. One section of the newsletter highlighted the huge number of business failures in the township within the last year. The township official who wrote the article did not reveal how he or she arrived at the business failure statistics. The general message was that the business economy locally was failing miserably (due to a downturn in the auto industry), even if the numbers for those business failures were potentially maligned.

One of most popular ways of gauging business survival is through the renewals of “DBAs”. Derived from the term “doing business as”, DBA are filed within a local county not only when starting a business but also when one is simply saving the name or preventing another person or company from using it (It’s amazing to me how paranoid some folks are about someone “stealing” their name, even when the name itself is quite obscure).

After 3-5 years if the name is not renewed, the business is transferred (to a different name or entity), or the company decides to take on a more formal business structure (such as corporation or a limited liability company), that DBA many times falls into the dubious category of a “business failure.”

If a business owner retires or makes a life choice to do something else with his or her life, is that necessarily a business failure? Be careful when you hear misguided claims that “three out four businesses fail in their first three years”. The basis for the doom and gloom calculation is likely flawed.

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