According to the Bureau of Labor Statistics, as a small business owner of over 13 years, I still have about a 70% chance of failure. And it doesn't get any better for younger businesses. In fact, 22% 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 blog post, we'll cover 50+ facts on why so many small businesses fail in America today. Hopefully, these stats will help give you insight into what is going wrong in your own company or industry!
Top Small Business Failure Statistics:
TABLE OF CONTENTS
Small Business Failure Rate Statistics In The U.S.
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:
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:
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:
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:
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.
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Sources:
Advisor Smith | Lending Tree | Fundera | Forbes | Fortunly | Review42 | Investopedia | Small Business Chron | Yelp |
Reasons Why Small Businesses Fail In The U.S.
Why Do Most Small Businesses Fail In America?
The five most common reasons small businesses fail are that there is no marketing need for their service or product, a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.
Key Statistics:
Investopedia | Fundera | LendingTree |
Entrepreneur & Small Business Success Rate Stats
What Percentage Of Entrepreneurs Are Successful?
Research shows that about 80% of entrepreneurs make it through the first year. This number gradually reduces to 70% by their second year, 50% will still exist after the fifth year and only 30% will remain after 10 years. If going based on years in business, any entrepreneur that has been in business for longer than 10 years is pretty successful.
Key Statistics:
How Many New Small Businesses Start Each Year?
More than 600,000 new businesses open each year in the U.S.; this means that every month more than 50,000 businesses are created, and daily more than 1,680 businesses are being created by entrepreneurs, and roughly half of the country's workforce is employed by small business.
Key Statistics:
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 industryās 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.
Sources:
Concluding Thoughts
Taking Action
The odds may be against us, but itās 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 a small business insurance policy in place.