Causes of Failure in Small Businesses, with Focus on Estate Tax Planning; The Business Plan as the Key to Avoiding Failure
Von Deak, Lacey S.
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When considering internship options for my Senior Individualized Project, I remembered participating in a Small Business Institute project for a marketing class through the Kalamazoo Small Business Development Center. The project involved researching possible second locations for a local area businesswoman who wanted to expand her store. I thoroughly enjoyed the project, and it stirred my interest in small local businesses. I decided for my SIP, I would like to continue working with small businesses, and I contacted Carl Shook, then the director of the Kalamazoo Small Business Development Center at Kalamazoo College (hereafter referred to as the SBDC). The focus of the SBDC is to provide counseling and advice for people who want to start a new business, or people seeking support in their existing business. Beyond the day-to-day office tasks of answering phones, data inputting of client information, letter writing, faxing, and copying, the internship afforded me a range of challenging responsibilities. The main focus of the internship was for me to take over the biweekly business plan seminar offered by the SBDC. I also met regularly with several clients, working on them with each of them individually on their business plans, or in one case, on a brochure for his rapidly expanding business. I was also involved in several special projects, including the Young Entrepreneurs Seminar for area high school students, and the coordination of the visit of Dr. Olukne Iyanunda from Africa University. My internship at the SBDC steered me in the direction of my research topi~. Our goal at the SBDC improve chances for small business success; but what causes small businesses to fail? My research focused on answering this question. Overwhelming, the literature that I found stated that the two main causes of small business failure are finance problems and poor management. In terms of finance, three main sub problems were identified: under-capitalization, cash flow, and cost control. Management problems stem from a lack of both experience and what may be referred to as ''the entrepreneurial spirit." Another key factor leading to small business failure is the estate tax, which affects a business when it is turned over from one generation to the next due to the death of the founder and original CEO. The estate tax is a leading cause of dissolution for thousands of family-run businesses. From the research that I conducted, I am able to conclude that careful planning with strong emphasis on the development of a thorough, well thought-out business plan, is essential to avoiding small business failure. The business plan must be a living document, consistently modified and updated as the business grows and the market changes.
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