Business Falure & Dissolution

Business failure is defined as the closing of a business that results in financial loss for at least one of the business's creditors. An associated term, business dissolution, refers to the formal termination or closure of a business as well, but with dissolution, financial loss (for the business owners or for the business's creditors) is not necessarily a part of the equation. All entrepreneurs who decide to establish their own business face the possibility of failure, and a good deal of "popular wisdom" holds that failure is not only possible but probable for the small business owner seeking to launch his or her own enterprise (it has long been said that four out of five new businesses fail within five years of their establishment, for instance). But current studies indicate that such gloomy forecasts often present a false picture of entrepreneurial realities. Indeed, many business experts that the majority of small <>business owners are actually successful with their ventures. "Outright failures of small businesses are in fact remarkably rare," contended Nation's Business, "if failure is defined, reasonably enough, as a business closing that results in losses to creditors because the firm files for bankruptcy or because it simply closes its doors without paying its debts." Business experts who study the gap between actual rates of business failure and the popular perception of those rates often blame it on a general misunderstanding of the nature of business dissolutions. "The confusion comes in mixing up business failures with business dissolutions," Nation's Business flatly stated. "Lots of small companies go out of business for reasons that probably shouldn't be called 'failure'—the owner may have gotten bored, for instance, may be disappointed with the returns, or may simply want to try a greener pasture. If an entrepreneur closes one business and starts another one that is more successful, that's more reason for celebration than concern." Bruce D. Phillips, a director with the Small Business Administration's office of economic research, even told Nation's Business that studies indicate that there may be four to eight times as many dissolutions as there are outright business failures. (This post was edited to remove a link. Please review our Community Best Practices for more information about how best to participate in our online discussions. Thank you.)