Starting a small business is like planting a tree. It requires care, patience, and the right conditions to grow. But even with the best efforts, not every tree survives a storm.

Similarly, not every small business has made it through the first few years. If you own a small business or think of being one, you should think about the possibility of failing in your business.

Let’s break the numbers, discuss why we close businesses, and what 2025 will look like.

Table of Contents:

1. Why Do Small Businesses Fail?
2. What Percentage of Small Businesses Fail Each Year?
3. 2025 Outlook: What is changing?
4. How to Improve Your Chances of Survival?
5. Final Thoughts

Key Stats:

1. 82% of business failures happen because owners cannot manage cash flow.
2. 35% of startups fail because they have no demand for what they sell.
3. 20% of businesses fail in their first year.
4. 30% close by the end of year two.
5. 50% shut down after five years.
6. 35% survive for 10 years or more.
7. 43% of small businesses reported temporary or permanent shutdowns due to lockdowns and sales reductions.
8. 68% of small businesses have reported steady or increasing income using tech tools.
9. 45% of small businesses could not secure full credit.

Why Do Small Businesses Fail?

Here are the most common reasons:

Running Out of Cash

Money problems are the #1 killer of small businesses. One study found that 82% of business failures happen because owners cannot manage cash flow. Profitable businesses can also break up without enough money to pay bills, employees, or suppliers.

No Market Demand

Imagine opening a snow shovel store in the desert. If customers do not need your product, the business will not survive. One research shows that 35% of startups fail because they have no demand for what they sell.

Poor Management

Inexperienced leadership, bad planning, or hiring the wrong team can sink a business. For example, the restaurant may fail if the owner does not properly track food costs or train staff.

Contest

Large companies like Amazon or Walmart can reduce prices, making it difficult to compete with small shops. Local businesses often struggle to stay stand-up unless they give something unique.

Sources: (U.S. Bank Study on Cash Flow), (CB Insights Report)

What Percentage of Small Businesses Fail Each Year?

Let’s cut to the point and see what the latest data shows:

1. 20% of businesses fail in their first year.
2. 30% close by the end of year two.
3. 50% shut down after five years.
4. 35% survive for 10 years or more.

Since the 1990s, these figures have not changed much. However, the COVID-19 situation causes a temporary spike to stop.

In 2020, 43% of small businesses reported temporary or permanent shutdowns due to lockdowns and sales reductions. Thanks to the economy, which has mostly recovered, the rate of failure is back to the pre-pandemic level.

Sources: (BLS Business Survival Data), (Federal Reserve COVID-19 Impact Report)

2025 Outlook: What is changing?

Future predictions are difficult, but experts have identified trends that can affect small businesses in 2025:

Economic Uncertainty

Rising interest rates and inflation make loans and supply more expensive. The Federal Reserve predicts slow economic growth in 2024–2025, which can strain small businesses. For example, bakery prices paying more for flour and sugar can increase, endangering customer loss.

Adoption

Businesses using digital tools are likely to survive (such as Online Sales or Accounting Software Tools). The 2023 survey found that 68% of small businesses have reported steady or increasing income using these tools. In 2025, there will be the edge of the tech-service owners.

Receipt of funds

Banks are tightening loan requirements. The 2023 report shows that 45% of small businesses could not secure full credit, more than 33% in 2020. Without a loan, businesses can struggle to expand or cover emergencies.

Labor Shortages

Many industries (like construction and healthcare) face worker shortages. Small businesses offering better pay or flexible hours will find it easier to retain staff in 2025.

Source: (Federal Reserve COVID-19 Impact Report), (National Small Business Association Survey), (Federal Reserve Bank of New York)

How to Improve Your Chances of Survival?

While failure rates might seem scary, many businesses thrive by avoiding common mistakes. Here’s how to stay in the 35% that survive a decade:

Create a Detailed Business Plan

A plan acts like a roadmap. It should include financial projections, target customers, and marketing strategies. Businesses with sba business plan are more likely to grow. So, while you are on it, explore business plan writing services that can help you write a detailed plan.

Watch Your Cash Flow

Track every dollar coming in and going out. Use tools like QuickBooks or hire an accountant or a visa consultant, then develop a business plan for visa e2. Save at least 3–6 months’ worth of expenses for emergencies.

Listen to Customers

Ask for feedback and adapt. For instance, if your café’s clients want vegan options, adding plant-based meals could boost sales.

Embrace Technology

Set up a website, use social media, or try online ads. Even a simple Google My Business listing can attract local customers.

Build a Support Network

Join local business groups or organizations that offer free mentorship. Learning from others’ mistakes can save you time and money.

Final Thoughts

No one starts a business expecting to fail. While roughly half close within five years, the right preparation can tilt the odds in your favor.

As we get closer to 2025, focus on being flexible, managing money skillfully, and meeting customer needs.

Remember, successful entrepreneurs like Henry Ford and VT Disney faced failures before hitting them. With persistence and smart planning, your small business could beat the statistics.