Rho Hexagon Inc. specializes in providing strategic advice on dealing with impending legal and financial crises endangering your small business enterprise or, in certain cases, in acquiring your distressed small business enterprise as a principal, as a partner, or as part of a group.
What Is a “Small Business”?
Finance Canada has defined a small business as one that “can be conducted either directly by one or more individuals, or indirectly through one or more separate legal entities set up by individuals”.
Canadian tax laws have established the following criteria for favourable ‘small business’ tax treatment: a business having fewer than 100 employees and an annual income of under $500,000. Statistics Canada determined that nearly 70 percent of all Canadian businesses meet that criteria. While there is no agreed-upon threshold, businesses with 1 to 4 employees are considered to be micro-enterprises and make up 53.8 percent of Canadian businesses.
What is a Distressed Business?
According to data from the U.S. Bureau of Labor Statistics, about 20 percent of small businesses in the United States fail within their first year. By the end of their fifth year, roughly 50 percent of small businesses fail. After 10 years, the survival rate drops to approximately 35 percent.
Innovation, Science & Economic Development Canada reports lower failure rates of small businesses in Canada that enter the marketplace with about 33 percent after five years. Micro-enterprises have a slightly lower business failure rate at 29.6 percent after five years in business. Approximately 7000 businesses go bankrupt every year in Canada.
Businesses can fail for a variety of reasons including
- Lack of Experience,
- Poor Financial Management,
- Insufficient Marketing,
- Lacking Uniqueness and Value,
- Not in Touch with Customer Needs,
- Unprofitable Business Model, and
- Rapid Growth, Over-expansion, and Under-Capitalisation.
Some businesses may choose to shut down prior to an expected failure. Others may continue to operate until they are forced out by a court order.
