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What is the difference between business closure rate and failure rates?
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Originally Posted by user_id
Furthermore the failure rate for small business is not high, most statistics (e.g., by the SBA) look at business closure rates not failure rates, yet the two are rather different. But even the closure rates are not too bad, around 55% businesses close after 5-years.
But this the problem with today's college kids, they are operating under inaccurate views about the world. They believe there is little risk taking on debt to go to college, yet believe things like business involve huge amounts of risk. They believe the only way to make a decent living is to go to college. They believe that "a degree is a degree" and ignore the huge difference in the quality between colleges. Almost everything they think about the world on this matter is inaccurate. Its rather bizarre, and its going to result in a lot of unhappy people.
What is the difference between business closure rate and failure rates?
A lot, the closure rate just tells you that the business closed, there are numerous different types of successful closures. Only around 30% of people closing business cite failure as being the reason.
When people state statistics about the "failure rate" its from the rear. There is no good way of measuring failure as small-businesses have closed books, at best you can ask people why they are closing their business. So based on verbal reports the "failure rate" after 5-years would be around 20%.
Of course the working-class/middle-class never even talk about the "failure rate" for college, its not even part of their lexicon. I don't blame people though, when you're young its so much more comforting thinking that the key to success is just going to college and getting a degree.
How about getting a low level job in a large company or government, with flexible hours, right after high school and putting yourself through college in the evening, while working full time during the day, knowing what degree and what kind of classes will be needed to move up within that company? You might even ask for the support of your boss as to what courses they recommend you take and/or mention your intention when you are hired to determine if there is support for your ambition within that company. The way I see it, by the time you graduate, you'll have some years of company experience under your belt, know who you have to please and what it takes to please them and you'll have a leg up on the competition from new graduates. Plus, you will probably have no student debt or next to no debt. And if that company doesn't come through for you, you'll have working experience in your chosen industry and a degree to impress some other company in your field. I know if I was hiring, I'd be impressed.
I want to do this. Im working part time with flexible hours, but the industry I want to get into is a no-go without that degree because its so specialized. Yes, I could try for a job with a company like Zales or Kay's, but the reality is I'd suck as a full counter girl salesperson.
And the company Im with now...NO, NO, a thousand times NO! Not in a million years. I was disappointed to discover I'd have to stay with them longer than I'd originally planned in the first place.
Most women that have kids take many years off from work to have their children, once they get a bit older they return to work. Many don't have kids at all. As a result this is not a big issue.
The primary reason women don't go into "the trades" is because society deems them to be masculine jobs.
Taking 'many years off from work' leaves you severely disadvantaged in terms of experience in comparison to your male colleagues. So you need to choose between a job and children. I'm sorry, but a career in the trades is not a viable option for the majority of women today.
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These are just widely help myths about small business. The average start-up capital for small businesses is only $10k, much more than the average student loan debt. Many businesses can be started with elbow-grease and very little money. Furthermore the failure rate for small business is not high, most statistics (e.g., by the SBA) look at business closure rates not failure rates, yet the two are rather different. But even the closure rates are not too bad, around 55% businesses close after 5-years.
I think it is considerably higher. Things are not like they used to be 20 years ago. Even a friend of mine who owns a neighborhood auto garage has seen his monthly expenses jump up $5K per month since the turn of the century just in taxes and state regulatory fees alone. In any type of business where you need a license (insurance, a salon, a bar, etc.) you'll probably burn $10K just on securing the proper items to place you into compliance. And that is before rent, buying any equipment or inventory, or paying salaries. My goodness, my sorority, which is a non-profit, with no rent or salary expenses, just shelled out $1,500 on an IRS application and state fees paid to FL for amending our corporate documents!
The general consensus is that less than half of small business fail/close after 5-years. And of those that stay open, how many are wildly profitable? And of those that are profitable, not everyone is suited to be their own boss; and work around the clock and go years on end without a vacation. It is not smart to offer the advice to become an entrepreneur to any and everyone. There are too many cases of wrecked personal finances and lives to do so casually.
Last edited by MissShona; 05-29-2010 at 03:41 PM..
Reason: added links
I like the idea of having two paths available to high school students, a college preparatory one and a vocational one. You choose the college prep one, you get classes that, well, prepare you for college. You choose the vocational one, you get classes that would be enough to let you go to college if you decide later that's what you want, but you also spend time learning a trade, be it welding, carpentry, electrical wiring, auto mechanic training, locksmithing, what-have-you. Most kids will come out of high school either ready to enter the workforce with a solid backing in a valuable trade, or ready to go on to college.
I like that idea too. And the vocational path is available to a lot of students. My high school didn't offer very many vocational classes. But there was a technical high school (2 technical high schools actually) nearby that students could go to if that's the path they wanted to follow.
The state should award high school graduates a bachelor's degree for those who score in the top half on standardized tests. Since you can't order businesses to stop requiring degrees as a weeding-out tool, and going to college is basically just repeating high school, it's silly to waste all that time and money for college only to end up with a degree that is High School Diploma Plus.
Taking 'many years off from work' leaves you severely disadvantaged in terms of experience in comparison to your male colleagues. So you need to choose between a job and children.
This is true regardless of the field you work in and many women successfully enter the work force after they have had children. The primary reason women are not in the trades is due to social pressures, not their physical limitations.
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Originally Posted by MissShona
I think it is considerably higher. Things are not like they used to be 20 years ago.
You can think whatever you wish, but the fact remains that the average start-up capital is around $10k. That is not from 20 years ago either, that is a current figure.
I have no idea why you are linking to that page, its just showing an example. Here is a article that cites actual figures:
In any type of business where you need a license (insurance, a salon, a bar, etc.) you'll probably burn $10K just on securing the proper items to place you into compliance.
Some businesses require a lot of money to start, some require next to nothing. That is why the average is around $10k. Obviously, if someone does not have a lot of money they should not try to start a business that requires a lot of capital.
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Originally Posted by MissShona
The general consensus is that less than half of small business fail/close after 5-years.
Again, you give a link that does not support what you are saying. The link is citing closure rates which are distinct from failure rates. Businesses close for many reasons that have nothing to do with failure.
It seems that you really want to believe that businesses require a lot of money to start and that they are very risky, while you ignore the risks involved in what you are currently doing (loading up on debt to get a degree). At the end of the day its no skin off my bones.
It seems that you really want to believe that businesses require a lot of money to start and that they are very risky, while you ignore the risks involved in what you are currently doing (loading up on debt to get a degree). At the end of the day its no skin off my bones.
No, I am not ignoring any 'risks'. I am saying that the chances of a positive return on investment are more likely in obtaining a college degree than starting a business. Especially for people who need to borrow money to do these things.
The only way I myself would consider entrepreneurship is if I received a grant to fund my efforts. Then I could practice what I preach and consider employees with or without college degrees (but I wouldn't hold my breath on this happening) .
You are correct that it is my prerogative to rack up debt getting a degree. It is the best type of debt that someone can take on compared to the alternatives (credit card debt, home equity loans, etc.). Of course no one likes to be in debt. Of course, college does not really teach you how to do 90% of the jobs out there. However it is a prerequisite to get your foot in the door unfortunately, so you have to play be the rules and pay whatever the going rate is for a degree. You may get opportunities to better your financial standing without a degree (it has happened to me a few times); but these opportunities are becoming fewer and fewer.
No, I am not ignoring any 'risks'. I am saying that the chances of a positive return on investment are more likely in obtaining a college degree than starting a business.
Yes I know that you think this, but where is the evidence? You are unlikely to find a single piece of research trying to calculate the "failure rate" of getting a college degree. And this is just my point, society (like you are doing) at large inflates the risks associated with business and completely ignores the risks with college.
Furthermore, you have to look at the risks in connection to potential gains as well. Business may have more risks, but the potential gain is much greater than college as well. But before anything can be determined, you'd have to first determine "failure rates" of getting a degree.
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Originally Posted by MissShona
It is the best type of debt that someone can take on compared to the alternatives (credit card debt, home equity loans, etc.).
How it compares to other forms of debt is irrelevant. What matters is how the debt compares to any financial gains created from the debt.
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Originally Posted by MissShona
However it is a prerequisite to get your foot in the door unfortunately, so you have to play be the rules and pay whatever the going rate is for a degree.
Right this is the "you can't get a job without a degree" myth so you have to go to college at any costs. Only around 30% of Americans have degrees, do you believe the other 70% is homeless and unemployed? This myth is now turning into "you can't get a job without just a bachelors degree" and now people are flooding into Masters programs.
Yes I know that you think this, but where is the evidence? You are unlikely to find a single piece of research trying to calculate the "failure rate" of getting a college degree. And this is just my point, society (like you are doing) at large inflates the risks associated with business and completely ignores the risks with college.
Furthermore, you have to look at the risks in connection to potential gains as well. Business may have more risks, but the potential gain is much greater than college as well. But before anything can be determined, you'd have to first determine "failure rates" of getting a degree.
The lack of evidence does not disprove my conclusion, and it does not prove yours. You have more instances of people finishing college than people who start businesses. So it is easier for most people to see "ok, this usually works out". Taking high risks may pay off for some people, but it is not advice that should be given to the masses (as I said before). Especially to those who have several factors stacked against them (such as no capital) before they reach success.
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How it compares to other forms of debt is irrelevant. What matters is how the debt compares to any financial gains created from the debt.
It is relevant in the instance that I a presenting it. From the beginning, I have pointed out that most Americans my age (30s) have some kind of debt that they are carrying around. They are not all created equal. Educational debt is now where as close to financial suicide as a mortgage with negative amortization. It also has more 'return' than auto loans; yet people jump all over those without a second thought because of course, you need a car. Well in many instances, a college degree is becoming more and more necessary. So why all the scare tactics regarding the financing of a degree?
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Right this is the "you can't get a job without a degree" myth so you have to go to college at any costs. Only around 30% of Americans have degrees, do you believe the other 70% is homeless and unemployed? This myth is now turning into "you can't get a job without just a bachelors degree" and now people are flooding into Masters programs.
No, the majority of American workers have been in the workforce for more than 10 years. This stipulation with requiring college degrees for professional level positions mostly effects those who are recently entering the workforce. For example, where I work, the majority of the staff (I work at a university) who was hired 15 or more years ago do not hold college degrees. Today, all but the lowest level positions require the applicants to have a degree. Time and time again, I hear of supervisors and managers who state that they could not get their job today, because they chose not to go to college.
Also let's be real about the numbers of unemployed Americans; it may not be anywhere near 70%, but it is pretty high officially, almost 10%. This is only including the government's classification of what 'unemployed means'; and also not taking into account people who are underemployed. Many of these underemployed people are barred from advancement due to a college degree being a prerequisite for advancement. I know of countless people in this situation. Many more than the ones who do not have degrees, yet who have fared quite well (and I do know quite a bit of these people; although several of them already had a 'nest egg' to play with; so if they failed, there was always a backup plan).
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