Predicting viability of small businesses on the edge of failure

This study challenges traditional small business failure prediction models, which, while effective in categorizing bankruptcy in stable conditions, falter in predicting outcomes once firms are in a state of financial distress. Building on insights from small and medium-sized enterprises (SME) failure prediction, business turnaround, and entrepreneurial resilience, our analysis underscores the pivotal yet often neglected role of entrepreneurial traits in business failure and survival. By analyzing 520 viability audits of distressed businesses, we demonstrate that incorporating entrepreneurial characteristics refines the predictive accuracy of these models. Our findings challenge the static nature of traditional approaches, advocating for models that incorporate dynamic, non-financial variables to better capture the complexities of distressed businesses. This research calls for a shift in failure prediction methodologies to fully recognize the influence of entrepreneurial traits, capabilities, and behavior, offering a nuanced understanding crucial for stakeholders in the small business ecosystem.