Evaluating the Options
With 6.9 million jobs eliminated this year, many unemployed workers are trying to reverse their fortunes by starting their own businesses, either as solo entrepreneurs or by purchasing a franchise. According to the quarterly Job Market Index of outplacement company Challenger Gray & Christmas, 8.7% of the unemployed who found work in the second quarter of this year did so by starting their own businesses, up from 6.4% in the first quarter. But the figures commingle businesses with paid employees with self-employed people who incorporate, the latter representing 75% of all small businesses. Unfortunately, the odds are not on their side; according to the U.S. Small Business Administration’s Office of Advocacy, 50% of new businesses will fail in the first five years. That is in normal times, and we are right now in a difficult recession. The National Small Business Association reports that 60% of small businesses reported declining revenues over the past 12 months, the first time a majority of respondents cited declining revenues since the polling question was first posed in 1993. At the same time, business bankruptcies have nearly doubled over the past two years. Self-employment and entrepreneurship involve significant risks and at least some modest investment. As such, they are not viable alternatives to lack of opportunities in the formal job market.