In an article in the July issue of Entrepreneur magazine, "Down and Out," Joanne Cleaver reports that between 13 and 14 percent of people who file for personal bankruptcy do so as a result of failure in their small businesses. This information is based on findings of the Consumer Bankruptcy Project, a study of 2,000 households that filed for bankruptcy (one of the directors of the project is Elizabeth Warren, co-author of The Two Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke). Cleaver points out that even though small business owners generally have higher incomes and more assets, when they fail, they fail in a much bigger way. The study shows that credit card debt is a big part of the reason that small businesses fail because of "the degree to which high interest rates outstrip the business growth."
The fact of the matter is, it's difficult for small business owners to refrain from resorting to personal credit cards to fund their businesses during difficult times. When you risk losing your home because the bank has taken it as collateral for your guarantee of company debts, and you still have hope (perhaps foolishly) that the business will survive and succeed, there's an inevitable sequence of events that often take you and your business to the bankruptcy court.
On a brighter note, true entrepreneurs always find a way to come back into the game. Being in this rather grim profession, I can't help but admire someone who, months after financial catastrophe, is already starting another business.
Posted by maxedo at August 9, 2004 06:38 PM | TrackBackOnce you fail a business its always good to start some other. There is no point in lamenting and deciding for ourselves that we wont succeed in other ventures.
Posted by: N Hemapreya at September 6, 2004 04:09 AM