Small Business Failure Rate: How Many Small Businesses Fail

How Many Small Businesses Fail in the U.S.?

When you look at the sheer number of how many small businesses fail in America, (According to the Bureau of Labor Statistics), it can make you think twice about owning a business. And even as a small business owner of over 15 years, it doesn’t feel good to know I still have about a 70% chance of failure.

And the truth is that:

It doesn’t get any better for younger businesses, around22% of all companies will fail in their first year (even though small businesses are responsible for 1.5 million jobs annually), 30% won’t make it past their second year , 50% will suffer failure within five years , and more than 70% won’t make it past 10 years.

In this post, we’ll cover 50+ facts on how businesses fail in America to help give you insight into the risks of owning a business.

How Many Small Businesses Fail in the U.S.?

Half of U.S. small businesses fail within 5 years, around 70% are gone by year 10, and only 25% last 15 years or more.

Only 22% of new small businesses and startups survive their first year in business.
30% of U.S. businesses fail in the second year.
Half (50%) of all small businesses in America fail in their first 5 years.
Around 70% of small business owners fail in their 10th year.
25% of small businesses will last for 15 years or more.
Every year, 600,000 new small businesses start in the U.S.
Approximately 90% of startups will fail.
Roughly only 60% of new businesses overcome the second-year hurdle.
42% of small businesses fail because people did not want what they were selling.
Nearly 30% of small businesses failed because they ran out of cash.

What Percentage of Small Businesses Fail?

Half of small businesses fail within their first five years, and most are gone by their tenth, with the year by year percentages below.

What Percentage Of Small Businesses Fail In America?

According to the U.S. Bureau of Labor Statistics, more than 20% of small businesses in the U.S. end up failing within a year. After five years, around 50% fail, and after 10 years, only 30% are still running. Once you pass the 15 year mark in business you still only have a 25% chance of surviving. Surprisingly, business failure rates are relatively consistent over time.

How Many Small Businesses Fail Each Year?

NUMBER OF YEARS IN BUSINESS	SURVIVAL RATE (Percent)	FAILTURE RATE (Percent)
1	78.1%	21.9%
2	68.2%	31.8%
3	60.3%	39.7%
4	54.3%	45.7%
5	50.0%	50.0%
6	46.4%	53.6%
7	42.3%	57.7%
8	39.0%	61.0%
9	36.8%	63.2%
10	34.3%	65.7%
15+	25.0%	75.0%

The survival rate of small businesses in the United States in 2020 is examined above. The data used was from businesses that were started between 2010 and 2019.

How Many Small Businesses Fail In The First Year?

About 20% of small businesses will close their doors in the first year. In addition, some 17% of restaurants will also close in their first year. This means that only about 80% of small businesses will survive their first year running a company, according to the U.S. Bureau of Labor Statistics.

Key Statistics:

About 20% of U.S. small businesses cease operating in the first year.
Roughly 80% of small businesses survive the first year.
17% of restaurants that open will be closed in the first year.

How Many New Businesses Make It Through Their Second Year?

More than a third of small businesses fail within the first two years. This number holds true for even the foodservice industry, with only 70% of those surviving their second year. Also, 31% of businesses founded in March 2016 had closed by March 2018.

Key Statistics:

An estimated 30% of small businesses fail within two years.
31% of small businesses that were founded in March 2016 failed to survive by March 2018.
Only 70% of food service-related businesses survive their second year.

How Many Small Businesses Fail In The First 5 Years?

50% of small businesses fail within 5 years. About 49.3% of small businesses founded in 2013 were closed by 2018. These numbers also hold true to the food-services industry; 50% of restaurants will be closed within 5 years according to data from the U.S. Bureau of Labor Statistics.

Key Statistics:

About half of small businesses in America survive past their five-year mark, ranging from 45.4% to 51%.
Of the small businesses founded in March 2013, 49.3% closed by March 2018.
Only Half of food service businesses survive their fifth year.

How Many Small Businesses Fail In The First 10 Years?

Nearly 70% of small businesses fail within their first 10 years, meaning that only about 30% of companies (about one in three) will actually become a decade old. In fact, only 35% of food services businesses survive their tenth year, according to data from the Bureau of Labor Statistics (BLS).

Key Statistics:

Nearly 70% of small businesses fail within their first 10 years of operation.
30% of small businesses that opened in March 2007 were still in business by March 2017.
Of small businesses founded in March 2008, 66.3% were closed by March 2018.
Just thirty-five percent of restaurants in America survive their tenth year.

Is Covid-19 Affecting Small Business Closures?

As of August 31st, 2020, COVID-19 was responsible for permanently closing 61% of businesses in the restaurant industry, some 54% of small businesses in the bars and nightclubs space, and over 58% of retail and shopping stores, and some 42% of stores in the beauty industry, according to a recent study conducted by Yelp.

Key Statistics:

The restaurant industry has the most COVID-19 impacted businesses, with 32,109 closures as of August 31 2020.
Restaurants with the highest rates of closures include breakfast places, burger joints and sandwich shops.
As of the end of August 2020, 54% of bars and nightclubs were permanently closed due to COVID-19.
The share of permanent closures within bars and nightlife increased by 10% since July of 2020.
Retail & shopping has seen 30,374 total business closures across the country with 58% of them being permanent.
Clothing stores, both men’s and women’s, have the highest rate of closures among small businesses in America.
Small business closures in the beauty industry have increased by 22% since July 2020, totaling 16,585 closures.
Of all closed stores in the beauty industry in America, 42% or 7,002 will not reopen due to the coronavirus.
The fitness industry has seen a 23% increase in closures since July of 2020. 43% of which are permanently closed.

Small Business Survival & Failure Rates By Industry

The graph below shows the five-year average survival and failure rates for different industries, with the higher percentage representing a more significant number of business failures. These statistics were calculated using a weighted ranking of each industry’s survival rate over the past five years to show which industries have higher and lower success rates and their average across all periods.

RANK	INDUSTRY	AVERAGE 5 YEAR FAILURE RATE	AVERAGE 5 YEAR SURVIVAL RATE
1	Agriculture, Forestry, Fishing and Hunting	21.42%	78.58%
2	Real Estate and Rental and Leasing	26.30%	73.70%
3	Retail Trade	27.60%	72.40%
4	Arts, Entertainment, and Recreation	28.84%	71.16%
5	Manufacturing	29.50%	70.50%
6	Accommodation and Food Services	30.00%	70.00%
7	Educational Services	30.52%	69.48%
8	Utilities	30.88%	69.12%
9	Construction	32.74%	67.26%
10	Health Care and Social Assistance	32.80%	67.20%
11	Finance and Insurance	32.86%	67.14%
12	Wholesale Trade	35.26%	64.74%
13	Management of Companies and Enterprises	35.42%	64.58%
14	Transportation and Warehousing	35.72%	64.28%
15	Professional, Scientific, and Technical Services	37.04%	62.96%
16	Administrative and Waste Services	37.16%	62.84%
17	Information	40.30%	59.70%
18	Mining, Quarrying, and Oil and Gas Extraction	40.94%	59.06%

What Small Business Industries Have The Highest Survival Rates?

Based on a 5-year average, the agricultural industry (78.58%), real estate industry (73.70%), retail trade industry (72.40%), arts and entertainment (71.16%), and manufacturing industries (70.50%) have the five highest survival rates. While starting a business in one of these industries doesn’t guarantee your success, it could help give you a better idea of the direction you want to take before you start a new company.

What Business Industries Have The Highest Failure Rates?

Based on a 5-year average, the mining industry (40.94%), information industry (40.30%), waste service industry (37.16%), professional services industry (37.04%), and transportation industries (35.42%) have the five highest failure rates. While starting a business in one of these industries doesn’t mean you will fail, it could just help give you a better idea of the direction you want to take before starting a new business.

Taking Action

The odds may be against us, but it’s not impossible to succeed in the small business world. With a bit of luck and intelligent decisions about protecting your company from failure, your startup can grow into a successful operation that will provide jobs for yourself and others.

It should also be noted that despite these small business failure statistics, there are many ways to reduce the risk of financial loss by making sure you have asmall business insurance policy in place.

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