The Relationship between Written Business Plans and the Failure of Small Businesses in the U.S.

Abstract

The objective of this study was to investigate the influence of planning on U.S. small business failures. A “failure” was defined as a bankruptcy with losses to creditors; firms with fewer than 500 employees were considered “small.” Recently failed firms were selected randomly and matched with non‐failed firms on the basis of age, size, industry, and location. The sampling frame was businesses listed in the Dun & Bradstreet credit reporting database. A paired‐sample t‐test was used to investigate differences between the failed firms and matched non‐failed firms. The main conclusion was that very little formal planning goes on in U.S. small businesses; however, non‐failed firms do more planning than similar failed firms did prior to failure.