What Percentage of Small Businesses Fail? 59+ Vital Statistics

Finding your way in the cutthroat jungle of small business is incredibly hard. There’s simply way too much competition out there.

What’s more:

Customers demand top-notch service in the blink of an eye. Nothing short of amazing will do.

With that in mind, it should come as no surprise that success is elusive. 

You’re probably wondering: 

What percentage of small businesses fail? 

I’ve gathered the most recent statistics and facts to help you find an answer to that question.

Let’s get to it.

But before digging deep into every interesting stat, let’s have a look at some important fascinating facts first.

Astonishing Business Failure Statistics

  • 20% of small businesses fail in their first year.
  • 30% of new businesses fail during the first two years.
  • More than half of new businesses fail within five years.
  • 70% of small businesses fail in their 10th year.
  • Two-thirds of small businesses fail within their first ten years of existence.
  • Nearly 70% of American entrepreneurs start businesses from home.
  • About 7,000 businesses go bankrupt in Canada every year.

Gives you pause, doesn’t it? We’ll explore in depth the main reasons why new businesses fail

But first, let’s have a look at the state of the field. 

1. In 2016, there were about 5.6 million small business employers in the US.

(Source: Statista)

  • 51% of small business owners are older than 50.
  • In 2018, one-third of small businesses in the US started with less than $5,000.
  • Nearly 70% of American entrepreneurs start businesses from home.

According to US Bureau of Labor Statistics, it’s never too late to start a new small business. Contrary to popular opinion, it’s not really a young man’s game. You don’t need all that much money or an office, either. 

In fact: 

Home office and co-working spaces have become increasingly popular over the last few years. 

But don’t get all that excited just yet.  

2. What percentage of small businesses fail in the first year? Тhe answer is 20%.

(Source: Fundera)

  • 30% of new businesses fail during the first two years.
  • More than half of new businesses fail within five years.
  • 70% of small businesses fail in their 10th year.

If you were wondering what percentage of small businesses fail within the first year, this stat is for you. They say it gets better with age, but that’s clearly not the case when it comes to small businesses. Even if you’ve been around for a while and think you’re well established in your niche, there’s a pretty good chance you might go under. 

3. 17% of restaurants close in the first year.

(Source: Forbes)

  • 70% of food service businesses survive their second year.
  • 50% of food service businesses survive their fifth year.
  • 35% of food service businesses survive their tenth year.

Popular reality TV series like Kitchen Nightmares will have you believe most restaurants inevitably fail in the absence of a celebrity chef’s magical intervention.

However:

The stats reveal that’s clearly not the case, even if Gordon Ramsay might find that hard to swallow (pun intended). In any event, I doubt he has the latest data on what percentage of new small businesses fail.

4. 29% of small businesses failed because they ran out of cash.

(Source: Fortune)

  • 42% of small businesses failed because there was no market need for their product or service.
  • 17% of small businesses failed because of a poor product or service.
  • 14% of small businesses failed because of poor marketing.

If you were wondering what percentage of small businesses fail because they ran out of cash, you now know the answer. While it’s the second most common reason, it doesn’t really come close to the lack of market need. Just because you think you have a brilliant product, it doesn’t mean customers are going to buy it with open arms. 

5. 27% of business owners could not access enough business capital.

(Source: Fundera)

  • Of these 27%, 57% said the lack of capital had no effect on their business.
  • 33% said this left them unable to grow their business and expand.
  • 18% stated a lack of capital forced them to lay off employees.

How long do most small businesses last? It varies. 

While you don’t need a lot of money to start, it’s not always easy to get investment later on.

What Percentage of Small Businesses Fail

 

Investors are often reluctant to back up risky ventures. You’ll need solid proof of concept or excellent collateral to persuade them to part with their hard-earned cash. Preferably both. 

6. Personal and family savings were the most common source of capital to finance business expansion (21.9% of small firms). 

(Source: Small Business Association)

  • Business profits and assets were the second most common source of capital (5.7%).
  • Business loans from financial institutions were the third most common source  (4.5%).
  • Business credit cards from banks came next (3.3%).

The bank of mum and dad doesn’t just help university graduates pay off their student loans. It also helps potential entrepreneurs fund their small businesses. But not everyone is that lucky. This helps explain why 90% of small businesses fail.

7. 396,000 businesses closed in the US in 2015.

(Source: Small Business Administration)

  • The highest number of annual closures in recent years stood at 486,491 in 2009.
  • In 2015, there were about 414,000 new businesses.
  • The highest recent number of annual openings in recent years stood at 487,673 in 2008.

It’s no coincidence that the highest number of small businesses failed in 2009, at the height of the financial crisis.

Here’s the good news:

The rate of closure has been decreasing steadily since 2009. Click To Tweet

8. How many small businesses fail in Canada? About 7,000 businesses go bankrupt every year.

(Source: The Balance Small Business)

  • 96% of Canadian small businesses survive for one full year.
  • 85% survive for three years.
  • 70% survive for five years.

It might seem surprising at first, but the small business climate is clearly better north of the border.

The business failure rate of microenterprises1Businesses that have between one and four employees is slightly lower than that of other small businesses. That’s why their contribution to what percentage of small businesses fail in Canada is lower.

So, what are the leading risks to small businesses? Let’s find out.

9. 32% of small business owners say cyber incidents such as cybercrime, data breaches, or IT failures pose a threat to small businesses globally in 2019.

(Source: Statista)

  • In 2018, this figure stood at 30%.
  • 31% of UK small businesses reported that their worst security breach was infection by a virus or malicious software.
  • 23% of UK small businesses stated their worst security breach was an attack or unauthorized access by others.

Cybercrime poses the most serious threat to small businesses across the globe, and the UK is no exception. These stats are key to understanding what percentage of small businesses fail in the UK. Small business cybersecurity concerns persist well into 2019.

10. What percentage of small businesses fail due to a data breach? In 2018, 67% of small businesses experienced a cyber attack.

(Source: PR Newswire)

  • 58% of small businesses experienced a data breach in 2018.
  • 37% blamed an external hacker.
  • 32% said their companies could not determine what caused the data breach.

Two-thirds of small businesses fall prey to cybercriminals.

This is huge! 

In case you’re wondering “how can small businesses avoid failure,” the answer is by investing in cybersecurity. Hackers don’t target only giant enterprises like Facebook and Google – even your dry cleaning businesses might suffer. 

But it’s not all doom and gloom. 

Here’s the good news:

11. Female entrepreneurship grew by 114% between 1997 and 2017.

(Source: American Express)

The number of female business owners has skyrocketed over the last two decades. 

What’s more:

During the last twenty years, the employment growth rate for women-owned businesses was twice that of all businesses.

12. Half of all women-owned businesses can be found in three industries.

(Source: American Express)

  • 23% of all women-owned firms are in “other services” (e.g., hair and nail salons and pet care businesses).
  • 15% of all women-owned firms are in healthcare and social assistance.
  • 12% of all women-owned firms are in professional/scientific/technical services.

Female small business owners are particularly successful in the service industry, which impacts what percentage of small businesses fail. In contrast, male entrepreneurs tend to dominate manufacturing, mining, management consulting, and wholesale trading startups.  

13. Arkansas, Illinois, Ohio, West Virginia, and Nebraska are the US states where women-owned businesses have the least economic clout.2The growth in the number of firms and growth in employment and revenue

(Source: American Express)

  • Nevada is the state where women-owned businesses have the most economic clout.
  • Women-owned businesses in the District of Columbia have the second-highest economic clout.
  • South Dakota is the state where women-owned businesses have the third-highest economic clout. 

It should come as no surprise that predominantly rural states like West Virginia and Nebraska, whose economies rely on male-dominated industries like mining, agriculture, and forestry, are not the ideal setting for female-owned small businesses. Nevada is an exception due to the fact that it profits from the entertainment and gambling businesses. 

All in all:

Location plays a crucial role in what percentage of small businesses fail in the first year.

14. 80% of clothing retail stores close within five years of opening.

(Source: SmallBizTrends)

  • Most retail stores fail due to poor management.
  • Only 20% of products are purchased through direct sales reps.
  • 99% of direct sales reps suffer significant financial losses.

When was the last time you bought a shirt from an independent retail store? You probably can’t remember, right? 

The thing is:

Those of us who aren’t fashion aficionados tend to buy our clothes from Amazon or eBay. It’s a lot faster and cheaper and saves you the hassle of going to the mall. A couple of clicks and you’re done. 

That’s why clothing retail stores are feeling the heat. That’s also what helps determine what percentage of small businesses fail in the first 5 years.

15. 60% of small businesses are not profitable.

(Source: SmallBizTrends)

  • 30% of small businesses break even.
  • 30% are continually losing money.
  • 9% have a chance of surviving 10 years.

Do most small businesses fail? The stats show they do indeed.

Should that discourage you from opening a small business?

Not necessarily. There are plenty of excellent online business degrees that can help you out and ensure you won’t be contributing to the statistics on what percentage of small businesses fail in the first three years

And on that positive note:

Conclusion

Look, I get it: 

Making your way as a small business owner in this day and age can be tough. Every day, we read about what percentage of small businesses fail in the first year in the USA. The competition is fierce, and it’s difficult to break even or stay in the field in the long run. 

You’re also likely to face a number of challenges, such as creating a sound business plan, finding the right employees, and securing much-needed investment.

But it’s not all bad news:

The fact that more small businesses are opening than closing is proof that reports of the death of entrepreneurship are greatly exaggerated.

And now that you know what percentage of small businesses fail and why, you’re already well on your way to success. Go get ‘em, tiger!

 

Sources: 

  1. Statista
  2. Fundera
  3. Forbes
  4. Fortune
  5. Fundera
  6. Small Business Association
  7. Small Business Association
  8. The Balance Small Business
  9. Statista
  10. PR Newswire
  11. American Express
  12. American Express
  13. American Express
  14. SmallBizTrends
  15. SmallBizTrends

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