When a venture no longer exists after a year, it’s considered a business failure. The Department of Trade and Industry said that as of September 2020, over 90,000 businesses have remained closed due to the pandemic—mostly micro, small and medium enterprises. Business failure rates have always varied annually, but last year’s is definitely one for the books.
Economic conditions mainly dictate the failure rates of businesses. Outlier events such as natural disasters (like the Taal Volcano eruption) or the COVID-19 pandemic can create a harsh landscape for many industries and affect businesses of all sizes.
Mass layoffs and closures occurred just a few weeks into the global health crisis as businesses attempted to cut costs and avoid bankruptcy. The risks of closure were also influenced by the estimated duration of the pandemic. Since there are varied beliefs as to the timeframe of COVID-related disruptions, business expectations have remained unstable and subject to change.
Business failure rates also vary from industry to industry. For example healthcare businesses and organizations have a relatively low failure rate since the demand for such services are constant, even increasing, given the current global health crisis.
Meanwhile, the transportation sector faced a decline due to movement restrictions in an effort to contain the spread of the coronavirus. This has also directly affected the flow of the supply chain, thus impacting the operations of businesses. Market conditions and high competition also dictate the success of industries such as that of SEO companies and BPO firms
Another factor in business failure is the financial fragility of small business entities. Since they generally have less capital reserves, they are likely to collapse in a short period of having no profit. This unprecedented time also revealed the integral role of technological innovations which, unfortunately, most small businesses do not have.
Looking at the bigger picture, the pandemic widened the gap between large corporations and small businesses. Failure rates may easily discourage budding entrepreneurs from pushing through with their business plans, thus shrinking the market further.
But although performing below par, businesses may still survive. One way to do that is to use business failure rates as a motivation to calculate risks and weigh possibilities. These numbers help dial down overconfidence and excessive optimism—it keeps an individual objective and pragmatic.
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