Starting your own business is an attractive option. It provides the potential for financial security in the future, perhaps even a life of riches.
Unfortunately, as the following small business failure statistics show, not every startup goes on to become successful.
That shouldn’t discourage you from starting a business.
Knowing the failure statistics simply helps ensure you are well prepared, effectively increasing your chance of success.
- Approximately 21% of small businesses will fail in their first year
- New businesses are 30% more likely to be successful today compared to the 1970s
- Entrepreneurs over 30 are more likely to succeed
- Healthcare and social assistance startups have the best chance of success
- 47% of business failures are due to poor cashflow
- 21% of business failures are due to disagreements
- 7% of small businesses fail because they got the price wrong
- In 2022, 33% of small businesses failed thanks to the global pandemic
- 86% of businesses invest in technology
- Over half of business owners believe family time is crucial
- 42% of businesses failed to find a market for their products
- 19% of failed businesses simply got beaten by the competition
- Businesses which sell services have a 59% survival rate
- Washington has the highest business failure rate
- 595,000 small businesses in the US close annually
- 60% of small businesses are not profitable
Top Small Business Failure Statistics in 2024
1. Approximately 21% Of Small Businesses Will Fail In Their First Year
Choosing to start a business is a brave decision.
In many cases, you’re putting your financial security on the line, hoping it will pay off.
The good news is that it does for many businesses. Most people focus on the failure rate.
However, according to statistics, approximately 21% of small businesses fail in their first year.
That means, roughly 80% of small businesses survive their first year.
That’s pretty good odds, especially when you consider the statistics also show over 50% of businesses are still trading five years after they started.
The rate is less favorable when you get to ten years.
Studies show roughly 33% of businesses make it to ten years. However, this doesn’t highlight whether the businesses have failed or closed for other reasons.
Either way, if you’re looking at a five-year plan, the odds are actually in your favor.
(Bureau Of Labor Statistics)
2. New Businesses Are 30% More Likely To Be Successful Today Compared To The 1970s
It’s never been easy starting a business and trying to get your brand recognized.
It takes a lot of hard work.
However, it appears that your chances of launching a successful business are much higher today than they were 50 years ago.
According to research, in the 1970s 50% of small businesses failed in their first year.
Today, that rate is down to around 20%.
It’s believed the difference is in preparation. Today’s entrepreneurs have the internet.
This effectively gives any business owner the information they need to make the right business decisions and network with other businesses.
In short, the modern business has a significantly better chance of success because they have much better access to resources.
3. Entrepreneurs Over 30 Are More Likely To Succeed
This statistic shows that sometimes age is a benefit.
According to a recent survey, anyone aged over 30 has a higher chance of success than those under 30.
Research is ongoing but it appears that older entrepreneurs have the benefit of experience, this counteracts the enthusiasm of youth.
A look at the top 0.1% growth group helps to reinforce this statistic.
The latest figures show 0.09% of business owners aged under 30 manage to become part of the top growth group.
In contrast, 0.17% of business owners aged over 30 make the group.
It’s fair to say experience plays a significant role in business success.
4. Healthcare And Social Assistance Startups Have The Best Chance Of Success
The industry you choose to start in makes a difference to your chances of success.
This isn’t surprising, some industries have higher-paying customers or less competition.
That makes them slightly easier for new players to get into.
However, what may surprise you is that it’s the healthcare and social assistance industries which offer the best chance of success.
According to statistics from the Bureau of Labour, just 19.9% of new businesses within these industries failed in their first year.
That’s less than the average failure rate of 21%.
It’s significantly less than the industry with the highest failure rate.
That’s the information industry, where 26.4% of businesses will fail in the first year of trading.
It’s worth noting that 23.4% of businesses in the healthcare and social assistance industry were still in business twenty years after they started.
5. 47% Of Business Failures Are Due To Poor Cashflow
This is potentially the most important statistic on the list.
Failure isn’t inevitable, knowing the most likely cause of failure makes it easier to avoid making the same mistake.
According to a Skynova survey of 500 startups, 47% of the businesses which failed did so because they didn’t have enough finance.
It can be argued that this is a cashflow issue, it can also be a case of not getting enough funding to start with.
A good business plan will ensure the business has enough funds to keep it going for the first year or two of life.
Failing in the first year for a lack of cash means you didn’t secure enough funding before you launched the business.
It’s worth noting that 370% more businesses failed in 2022 due to lack of funds than in 2020.
This suggests funding is harder to obtain, perhaps thanks to the global pandemic.
Cashflow isn’t the only issue facing a new business.
The survey also showed that 14% of small businesses fail in their first year because they aren’t in tune with their customers.
If you don’t know what their customers really want it’s hard to sell the right product.
Even small businesses which get this right can fail in their first year if they fail to market themselves properly.
The survey found that 14% of small businesses fail in their first year because they have failed to market their product and brand effectively.
6. 21% Of Business Failures Are Due To Disagreements
Running a business is complicated. You need to be capable of marketing your product, creating a product, accounting, and so much more.
Many small business owners try to do everything themselves, it helps to keep costs low.
However, as the business starts to grow it’s impossible to do everything yourself. That’s when financial and business partners, investors, and employees start arriving on the scene.
This is also when it can get even more complicated.
Every person involved in the business is likely to have their own opinion on how it should be run, how processes should be carried out, and the future of the business.
In many cases, these disagreements are ironed out, a compromise is reached and the business carries on.
However, according to a recent Skynova survey, in 21% of business failures, the reason is that the differences couldn’t be reconciled.
In short, there were too many disagreements.
If you’re running a small business it’s vital that you define every role in the business.
This helps to prevent disagreements and creates a final decision-maker.
It will increase the chances of the business surviving.
7. 7% Of Small Businesses Fail Because They Got The Price Wrong
A 2022 study by Skynova found that 7% of business failures were simply because they priced their product or service incorrectly!
This is why market research is essential before you launch your business.
You need to look at the market, identify your niche and where you fit within your industry.
This will help you find the right price bracket.
If you’re too expensive you may not get enough sales to create a profit. Go to cheap and you won’t be covering your costs.
In both cases, the business ends up failing.
Established businesses can often take the hit, adjust the pricing and marketing and keep going.
This isn’t the case for newer businesses which don’t have the financial backing to pull this off.
That’s why, 7% of small business failures are simply because the price wasn’t set correctly.
It’s interesting to note that 7% of failed businesses are caused by expanding without completing market research.
It causes the company to stretch too thin. Recently expanded businesses often fail due to a lack of cash flow.
8. In 2022, 33% Of Small Businesses Failed Thanks To The Global Pandemic
There is little doubt that the 2020 global pandemic took a toll on economies across the globe.
Today, most economies are still balancing on the edge of recession as they continue to recover from the pandemic.
At the height of the pandemic, roughly 65% of businesses were closing due to the pandemic and being unable to continue trading.
By 2021 this rate had dropped to 59%.
However, the effects of the pandemic are still being felt.
In 2022, 33% of small business failures could still be attributed to the after-effects of the pandemic.
The majority of these businesses have failed due to a lack of cash flow and an inability to get their products to their customers.
The pandemic may have passed but people are more cautious when spending and many businesses are still struggling.
Traditionally, 16% of small businesses fail because their owners burnout.
Put simply, the pandemic forced them to trim costs, take on more themselves, and lose time with their families.
All of which is a recipe for disaster in business.
9. 86% Of Businesses Invest In Technology
We live in a digital age where almost everything analogue has been replaced with a digital alternative.
Mobile phones are everywhere and it often seems like everyone has a phone glued to their hand.
The truth is, that technology is constantly improving. For a business to be competitive they need to be embracing the latest tech.
That means finding apps which will help improve efficiency, productivity, and help you reach a bigger audience.
It’s essential to embrace technology if you want to remain competitive.
It appears most businesses recognize this as 86% of them regularly invest in technology.
Statistics also show that 49% of businesses are already using mobile apps to connect with their users and 32% of businesses have included mobile payment options.
The easier it is to purchase the better for your customers!
The statistics also revealed that 26% of small businesses are using business planning tools, in many cases in the form of apps, to help ensure they are as productive as possible.
10. Over Half Of Business Owners Believe Family Time Is Crucial
Running a business means working extremely hard. It’s a necessary sacrifice for what is hopefully a better quality life in the future.
However, a survey by Business Wire found that 58% of business owners recognize that downtime is essential for their effective performance at work.
The 58% of entrepreneurs stated that their downtime with their family in the evenings was crucial to their, and their business, survival.
A further study by Xero found that 53% of business owners felt it was extremely important to have downtime with their loved ones every weekend.
It represents the perfect opportunity to de-stress and to maintain a work-life balance.
In fact, statistics show that 16% of failed companies have done so because the owner has suffered from burnout caused by having a poor work-life balance.
In short, if you want to be successful, don’t be afraid to take time off.
11. 42% Of Businesses Failed To Find A Market For Their Products
Of all the businesses that fail, a staggering 42%, that’s nearly half of them, are a direct result of not analyzing the market properly beforehand.
Of course, for many new entrepreneurs, this is a valuable lesson which needs to be learned the hard way.
Launching a business means you have a product which is better or cheaper than the competition.
Equally, it could be supplying a market which is currently under-served, leaving room for competition.
The mistake that many businesses appear to make is not verifying the direction of the market.
For a business to be successful it needs to be selling a product that is growing in popularity, or at the least, a stable market supply.
Trending markets are risky and fads are the most risky. Product interest is likely to decline as quickly as it arrives.
Both of these scenarios equate to a business failure.
12. 19% Of Failed Businesses Simply Got Beaten By The Competition
A recent study by the Commerce Institute found that 19% of failed businesses had a good concept and a market for their product or service.
However, they failed because the competition did a better job than them.
That means, the competition sold their product for less, had a better quality item, or did a better job of marketing their product.
This type of business failure is one that many entrepreneurs experience and learn from.
It also emphasizes the importance of product research to ensure you have the best possible product.
Alongside this, the statistic illustrates why it’s important to monitor your competition and market share. Doing this from the start can help to make the difference between success and failure.
After all, statistics show that 14% of all business failures are a result of poor marketing.
This concept is simply part of being beaten by the competition.
13. Businesses Which Sell Services Have A 59% Survival Rate
Recent research, conducted by Xero, found that failure rates weren’t just affected by the industry you choose to operate in.
The survey highlighted how important it was to choose the right market.
Specifically, it found that businesses selling services had a 59% survival rate.
In comparison, businesses selling products only appeared to have a survival rate of 28%.
Alongside this, the results highlighted customer targeting as a reason for failure.
The statistics showed that 49% of businesses which failed only sold to individuals.
Just 28% of the companies that survived sold just to individuals.
In other words, to help guarantee survival you must market your products and services to individuals and businesses.
Naturally, the level of marketing you undertook also makes a difference to success, or failure, rates.
However, this was accounted for in the above studies.
14. Washington Has The Highest Business Failure Rate
It’s not just marketing or your chosen industry that makes a difference to your survival rate.
Your location has also been shown to affect the survival chances of your new business.
According to the latest research by Zippia, more businesses fail in the state of Washington than in any other state.
In 2015, 53% of businesses in Washington failed.
By 2019 this figure had reduced to 36%. Unfortunately, it has retained the title of the state a business is most likely to fail in.
In contrast, in 2015 California had a business failure rate of 47%.
But, by 2019 it had reduced this figure to just 18% Interestingly, this is the same percentage as Louisiana.
Montana, Massachusetts, Idaho, Minnesota, and New Mexico all have failure rates of 19%, also making them attractive options.
Other states worth mentioning are Mississippi, Iowa, Texas, and New Jersey.
They all have failure rates as low as 20%.
15. 595,000 Small Businesses In The US Close Annually
According to the latest statistics, 625,000 businesses start trading annually in the US.
However, reports also show that 595,000 businesses close.
Of course, we know roughly 20% of businesses fail in their first year.
That means, around 125,000 new US businesses fail each year.
That leaves 470,000 businesses closing. The survey doesn’t show how old each business is when it closes.
It makes it difficult to ascertain how many of the 470,000 closures are business failures as opposed to deciding to end the business due to retirement, ill health, or even selling/merging.
Either way, these statistics can’t be ignored, especially if you’re just getting started.
It should be noted that the number of businesses overall gradually increases, as more open than close.
However, the total number of businesses still trading took a hit thanks to the global pandemic.
An estimated 60% of the businesses closed during the pandemic will never re-open.
16. 60% Of Small Businesses Are Not Profitable
It may surprise you to learn that over half of small businesses are never profitable.
All businesses expect to make a loss in their first 1-3 years.
That’s how long it takes to get established, build a customer base, and earn enough to cover the startup costs.
However, a lack of profitability doesn’t always mean the business will fail.
If it is covering its liabilities and paying the business owner an adequate wage, it can trade for years in a loss.
In effect, you’re building tax relief for the future.
Turning the business from unprofitable to profitable often requires a change in your marketing procedures and a review of your product.
It’s simpler than you may think.
(Office Of Advocacy)
Choosing to start a business is a brave decision.% For many, it’s the only logical choice.
However, approximately 20% of new businesses won’t survive the first year and roughly half won’t make it past ten.
That’s a sobering thought.
Instead of using this as a reason not to start your business, you should consider the above small business failure statistics and use them to ensure you don’t become one of them.
While some business failures are beyond your control, in most cases, it’s possible to become a success by understanding what you should, and shouldn’t be doing.
One of the biggest lessons is to choose the right support team and monitor your cash flow carefully.
Managing your finances will help you to be one of the successes, for as long as you want to trade.