There are 33.2 million small businesses across the US, and 1 in every 5 fails within the first year i.e,
20% of small businesses fail within the first year.
23% of businesses failed because they didn’t have the right people in the team.
Accommodation and food services businesses have the lowest failure rates within the first year.
The number of minority-owned firms in the US increased by 38% between 2007 and 2016.
Ready to dive deeper? Unveil the factors driving small business setbacks with essential failure statistics.
Top Small Business Failure Statistics: Editor’s Pick
- 80% of small businesses survive the first year. 20% fail within the first year. [1]
- 30% of small businesses fail by the end of the second year. [1]
- Most of these failed businesses are from Columbia (28%), ranking highest in failure rate within the first year. [1]
- 29% of businesses failed because they had no cash left. [7]
- 14% of businesses failed because they ignored their customer needs. [7]
- 77% of small business owners who apply for a bank loan from a big bank get rejected. [2]
- The IT industry has the highest business failure rates within the first year. [5]
20% of Small Businesses Don’t Survive First Year
What percentage of small businesses fail?
- 80% of small businesses survive the first year. 20% fail within the first year. [1]
- 30% of small businesses fail by the end of the second year.
- 50% of small businesses fail by the end of their fifth year.
- 70% of small businesses fail by their tenth year.
- 75% of small businesses fail by the end of fifteen years.
Source: BLS
It is to be noted that there are 33.2 million small businesses across the US, and 1 in every 5 fails within the first year. [1]
Most of these failed businesses are from Columbia (28%), ranking highest in failure rate within the first year. [1]
Why do Small Businesses Fail?
According to a poll conducted by CBInsights, founders specified the following reasons for their business failure.
- No market need for the product/service- 42%. [6]
- 29% of businesses failed because they had no cash left.
- Do you have a strong team? 23% of businesses failed because they didn’t have the right people in the team.
- 19% were outcompeted.
- 18% failed because of pricing and cost issues.
- 17% had offered a poor quality product.
- 17% didn’t have a good business model.
- 14% of small businesses didn’t have good marketing in place.
- Attention! Customer service may be your key to success. 14% failed because they ignored their customer needs.
Small Business Survival Rates By Industry
| Industry | Business failure rate within 1 year | Rank, 1-year failure rate | Business failure rate after 5 years | Rank, 5-year failure rate | Business failure rate after 10 years | Rank, 10-year failure rate |
|---|---|---|---|---|---|---|
| Agriculture, forestry, fishing and hunting | 13.8% | 18 | 29.6% | 19 | 50.0% | 19 |
| Mining, quarrying, and oil and gas extraction | 21.9% | 5 | 52.0% | 2 | 74.4% | 1 |
| Utilities | 21.2% | 8 | 38.3% | 15 | 57.4% | 17 |
| Construction | 18.9% | 10 | 40.1% | 13 | 61.2% | 14 |
| Manufacturing | 17.2% | 12 | 38.2% | 16 | 56.9% | 18 |
| Wholesale trade | 18.8% | 11 | 46.8% | 5 | 69.8% | 5 |
| Retail trade | 16.7% | 14 | 69.6% | 1 | 73.0% | 2 |
| Transportation and warehousing | 19.8% | 9 | 42.7% | 9 | 67.2% | 6 |
| Information | 26.4% | 1 | 51.8% | 3 | 72.1% | 3 |
| Finance and insurance | 22.0% | 4 | 44.5% | 8 | 62.9% | 11 |
| Real estate and rental and leasing | 16.3% | 16 | 34.8% | 18 | 59.1% | 16 |
| Professional, scientific and technical services | 23.4% | 2 | 47.2% | 4 | 70.2% | 4 |
| Management of companies and enterprises | 21.7% | 6 | 46.1% | 7 | 64.7% | 9 |
| Administrative and waste services | 23.1% | 3 | 46.7% | 6 | 66.2% | 7 |
| Educational services | 21.5% | 7 | 40.4% | 11 | 62.6% | 12 |
| Health care and social assistance | 14.4% | 17 | 41.2% | 10 | 63.3% | 10 |
| Arts, entertainment and recreation | 16.7% | 14 | 40.3% | 12 | 65.2% | 8 |
| Accommodation and food services | 13.6% | 19 | 39.6% | 14 | 62.0% | 13 |
| Other services (except public administration) | 17.1% | 13 | 37.8% | 17 | 60.7% | 15 |
Alt: [Business failure rate across industries]
The IT industry has the highest business failure rates within the first year. [5]
Accommodation and food services businesses have the lowest failure rates within the first year. [5]
Small Business Facts & Trends
77% of small business owners who apply for a bank loan from a big bank get rejected. [2]
That’s not all.
About 52% of small business owners who apply for a bank loan from a small bank get rejected. [2]
Women entrepreneurship is growing. Women own more than 11.6 million firms in the US. [3]
Minority-owned small businesses are flourishing too, as the number of minority-owned firms in the US increased by 38% between 2007 and 2016. [4]
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FAQs
What percentage of small businesses fail within the first year?
Approximately 20% of small businesses fail within the first year of operation.
What are the main reasons for small business failure?
The main reasons for small business failure include no market need for the product or service, financial constraints leading to cash depletion, inadequate team composition, intense competition, pricing, and cost issues, poor product quality, and ineffective business models.
What are the survival rates of small businesses over time?
Survival rates for small businesses decrease over time, with approximately 30% failing by the end of the second year, 50% failing by the end of the fifth year, and 70% failing by the tenth year.
What challenges do small business owners face when seeking funding?
Small business owners often face challenges accessing funding, with a high percentage experiencing rejection when applying for bank loans, both from big banks and small banks.
Conclusion
Despite the significant number of small businesses in the United States, a notable portion faces failure within the first few years of operation. Factors contributing to business failure include market need, financial constraints, inadequate team composition, fierce competition, pricing issues, product quality, and ineffective business models.
Sources
- BLS.gov. Table 7. Survival of private sector establishments by opening year
- Biz2credit.com. Biz2Credit Small Business Lending Index for March 2016
- NAWBO.org. Women Business Owner Statistics
- MBDA.gov. US Business Fact Sheets
- LendingTree. Business failure rate across industries
- CB insights. The Top 12 Reasons Startups Fail
Manisha is a digital writer providing guidance in career development and growth. She facilitates skill development and implementation of the right strategies for advancement. At Jobera, She documents content around the latest market trend analysis, insights, and career planning.