You might have to acknowledge some quite off statistics about what percentage of small businesses fail. Though many companies do succeed, don’t let these numbers discourage you.
We’ve put essential statistics together to help you rank the successful by minimizing risk and joining the small businesses at the heart of the American economy.
Contents:
– Top Statistics of Small Businesses Failure 2024
– Percentage of Small Businesses Failure Each Year
– Startup Failure Rate By Industry And Sector
– Factors Contributing to Small Business Failure
– Business Plan Is A Formula To Success
Top Statistics of Small Businesses Failure 2025
– Small businesses fail at rates of around 20% in the first year, 31.3% in the second year, 37.9% in the third year, 42.7% in the fourth year, and 48% in the fifth year.
– Only 25% of businesses become able to go beyond 15 years.
– There are 33.2 million small businesses existing across the United States.
– 99.9% of all firms in the US lie under the category of small business.
– Around half the percentage of small businesses survive for 5 years.
– Every year, small businesses are responsible for creating more than 1.5 million jobs in the US, it’s become 64% of all new jobs.
– More than 95% of small tech startups never complete their first 5 years.
All businesses experience unexpected twists and turns regardless of how well your plan is. According to the Small Business Administration, “only 20 % of small businesses get flop in the first year.” However, these statistics take a dramatic turn towards the worst in such a way that approximately 33 percent make it to ten years.
As per the Bureau of Labor Statistics U.S. report, “among 33.2 million small businesses about 1 in 4 U.S. couldn’t make up to their first year of operation.” And only ¼ of businesses pass a decade successfully. Most businesses in the US are small and create more than a million jobs in the region. Tech startups are significant in failing before their 5 years of operation.
Sources: Search Logistics, Lending Tree, SBA
Percentage of Small Businesses Failure Each Year
Indeed, starting a small business comes with many risks. Though the numbers are really discouraging you can make it work with different ideas and strong-mindedness. We’ve brought you the statistics that can help you decide how to allocate your funds successfully to have the best chance of achievement.
| Year | Percentage |
|---|---|
| 2019 | 20.60% |
| 2020 | 31.30% |
| 2021 | 37.90% |
| 2022 | 42.70% |
| 2023 | 48% |
| 2018 (forecasted) | 65% |
Bureau of Labor Statistics proposed that 733,721 businesses start in 2018 and more than 20.6% (one-fifth) of them shut down after just one year in operation in 2019.
Considerably, the percentage of failed businesses went up to 31.3% in the 2nd year (2020) and 37.9% in the 3rd year (2021)—basically, less than two-thirds of newly established businesses in 2018 were kept in operation till 3 years later.
In the 4th year of operation (2022), 42.7% of small businesses had closed. Then, by the 5th year in 2023, the failure rate of new business stretched to 48%. These statistics clearly anticipated that only around half of the new businesses of 2018 still survived half a decade on and approximately 65% are forecasted by their 10th year in business.
Startup Failure Rate By Industry And Sector
Small businesses significantly contribute to job creation, industry innovations, and economic growth. Let’s jump into the statistics to understand the small business failure rate of the industry sector-wise.
Fintech Frenzy: Billion Dollars Market Faces 75% Failure Rate
In 2022, the fintech industry was valued at $310 billion globally. At this time, more than 8,775 fintech startups operating in the U.S. The combination of financial solutions delivered with the help of technical innovation makes financial technology aka fintech.
– The largest fintech company is the Ant group with a $131 billion value.
– The rate of failure of fintech startups for project capital-backed businesses is 75%.
Sources: McKinsey & Company, Balancing Everything
Boom or Bust: Tech Startups Fail Despite Millions of Annual Revenue
Though the profitability of tech giants like Google, Facebook, and Apple is high. However, this industry has a crash rate higher than other industries because of multiple drawbacks.
– In the United States alone, 20 tech companies launch every year and generate $100 million in revenues.
– The failure percentage of tech businesses is 63% which is relatively high within the first five years.
Sources: Ewing Marion Kauffman Foundation, Forbes, Embroker
Real Estate Startups: Billion Revenue Amidst Half Failure Rate
In 2019, the Real estate startups generated around $1.9 billion in revenue in the US. The transaction of real estate directly contributes to the GDP in the US. Comparing the tech industry, the failure of real estate startups is relatively high.
– The real estate businesses fail at the rate of 48%, in 4 years.
Sources: Embroker, Tech, HousingWire, Crunchbase
High Stakes in High Demand: Mostly Construction Startups Fail Within a Decade
Within the first ten years, Two out of three construction startups shut off their business. Construction Startups being the industry leaders not only save time and costs of construction while providing excellent build quality and compliance with relevant standards. But the high demand doesn’t save this niche from failure.
– 20% of construction businesses don’t survive till their first year.
Sources: Pit & Quarry, Crunchbase, Small Business Trends
Factors Contributing to Small Business Failure
A survey conducted by CB Insights proposed that the major reasons for businesses failing are their incompetence in managing finances as well as the absence of sba business plan. Additionally, some small businesses don’t persist due to their out-competed or obsolete products.
| Factors | Percentage |
|---|---|
| Legal Problems | 2% |
| Sub-optimal operations | 2% |
| Tech-related problems | 6% |
| Financial Issues | 16% |
| Teamwork Issues | 18% |
| Marketing Strategies | 22% |
| Poor Market | 34% |
Most startups with a rate of 34% fail due to a poor product-market fit. Secondly, 22% of businesses fail because they didn’t implement the correct marketing strategies.
Furthermore, Teamwork issues and other human-resource-related problems cause 18% of startup failures. Also, 16% of letdowns are the result of financial issues including cash flow problems.
Additionally, Tech-related problems, i.e. poor cyber security and outdated software fail startups by 6%. Thereby, 2% of sub-optimal operations don’t let the startup survive. Equally, legal problems, such as licensing issues, registration complexities, and partnership disputes make the survival of business impossible.
Sources: Failory, Business News Daily, Investopedia, CB Insights
Top Reasons Why Small Business Fails?
| Business Failure Reasons | Percentage |
|---|---|
| Cash Flow Problems | 82% |
| Run Out of Cash | 38% |
| No Market Need | 35% |
| Competition | 20% |
82% of businesses experience or fail because of cash flow problems
Money is the #1 root that makes or breaks the business. It includes tangentially or cash flow problems. Statistically, more than 8 in 10 businesses confess to experiencing cash flow problems during their operations. Money has to be strategically used in business. Improper management of funds causes impossible-to-fix chronic complications.
38% of businesses fail because they run out of cash
A survey from LendingTree proposes, “25% of Americans wanted to open a business last year. However, of these, 40% admitted they didn’t have enough money to do so.”
After cash flow problems the top reason for new business failure is simply running out of cash and being unable to raise new capital. It can happen to even a profitable business if it begins to scale with an improper business plan and budget or enough funds.
35% of businesses fail because there is no market need
Studies show that 35% of startups get shut down by industrializing an irrelevant product in their product portfolio. This is caused by conducting careless market research and/or establishing an MVP (minimum viable product) to experiment with their product fit.
20% of businesses fail because their competition overtakes them
The third reason is the competition. Competition tends to eat the 20% of new businesses. Small businesses may have a ground-breaking idea to bring to market, but big businesses can mimic their offering and beat them with the perks of a larger scale. In short, competition is behind the failure of one-fifth of all businesses.
Sources: CB Insights, Lending Tree, Luisazhou
Business Plan Is A Key Formula To Success
There’s a maximum chance of avoiding being a business failure by taking an important step before initiating your business.
Before starting anything else, propose a robust business plan to facilitate success. An effective business plan increases the likelihood of launching a business. Entrepreneurs who prepare business plans get willpower and are 260% more likely to start their businesses.
If you plan on seeking outside funding at any point, investors will want to see a business plan. Growth Opportunities come with a business plan, as it increases the chances of growth by 30%.
For entrepreneurs seeking to invest in the United States, the business plan for visa e2 must demonstrate the business perspective to impact the U.S. A strategic business plan brings longevity approximately 70% of businesses have a plan to survive for 5 years.
The document will also help guide your decision-making in the early stages of your business and beyond, helping you avoid the common mistakes that lead to business failure. Cost-effectiveness Businesses with plans tend to achieve over 2x more profits than those without.
Conclusion
As we see the journey of a small business is uptight with challenges. However, proper planning and strategic action can steer the path to success. As we carry on through 2024, small business owners must be aware of the value of a well-constructed business plan and contact the best business plan writing services and all possible resources available to upkeep them in their accomplishments.
For more statistical articles, check out the Number of Small Businesses and the Average Revenue of Small Businesses.
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