The harsh reality is that some businesses will fail. So, it’s important to look at the inherent risks as well as clear up some of the myths about business failure.

This book provides essential and relevant information about systematically doing one important thing - optimising risk levels to improve the probability of survival and growth. Being in business is all about accepting that an appropriate level of risk is an essential part of growth and success.

No doubt you’ve heard the statistics regarding business failures. As an example, I’m sure you’ve heard that ‘more than 70% of businesses fail within the first five years’. These figures used to alarm me and I always seemed to hear or read them just at a time when I was feeling unsure about the future. When taken out of context they can be damaging to the confidence of the business owner and the growth of the business. They can encourage pessimism, reluctance and an unnecessarily high level of caution. As Benjamin Disraeli so astutely stated, ‘There are three types of lies; lies, damn lies and statistics’. The truth is that it’s more accurate to use the word ‘exit’ than ‘failure’ when describing the fate of most businesses that cease trading.

Each year, there are businesses entering and exiting the market and it is useful to have a logical and constructive way of thinking about these cycles. The fact is that business exits are an important by-product of a changing economy. New businesses bring new and improved ways of doing things to the market. While a failing business can be costly to the owner it ensures better products and services for consumers through healthy competition for market share. Business closures also release staff for use in other areas. Business exits are therefore evidence of progress.

According to a research paper by the Australian Government Productivity Commission, the figures that are so often quoted in the media are not quite accurate. Here is a summary of their findings:

Around 7.5 % of businesses exit each year. Twenty percent of these businesses change ownership so don’t actually go out of business. Of the remaining businesses that cease trading a very small number actually go bankrupt. Each year only 0.5% or 5 out of every 1000 businesses exit due to what could be described as a catastrophic failure (bankruptcy or liquidation). The rest are still solvent but through insufficient capital or another non-financial reason decide to close the doors. Therefore most exits are not necessarily failures.

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