What Percentage of Small Businesses Fail? 59+ Vital Statistics

Making your way in the cutthroat jungle of small business is incredibly hard. There’s simply way too much competition out there. Unfortunately, entrepreneurship is challenging, and many people who start small businesses often fail after a few years. Are you eager to learn  what percentage of small businesses fail?  We got all the statistics and answers.

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.
• Business owners under 30 years of age are more likely to fail.

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

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

1. In 2021, there were about 61.2 million small business employers in the US.

(Source: CDN)

• 44% of small company owners are between the ages of 39 and 54.
• During 2020, more than 4.4 million new companies were established in the United States.
• 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. Also, credit cards for new businesses with no credit are available. And, you don’t need 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: Food Industry)

• 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. 16% of small businesses failed because they ran out of cash.

(Source: Failory)

• 34% of small businesses failed because there was no market need for their product or service.
• 22% of small businesses failed because of poor marketing.
• 18% of small businesses failed because of team problems.

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 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 there are many profitable low-cost business ideas, a small amount of money is more than needed. It’s not always easy to get investment later on. Investors are often reluctant to back up risky ventures. You’ll need a solid proof of concept or excellent collateral to persuade them to part with their hard-earned cash – preferably both. 

6. With 64,4 %, personal and family resources are the most common source of funding for starting a business.

(Source: Small Business Association)

• Business loans from a financial institution were the second most common source of capital (16.5%).
•  Personal credit cards were the third most common source (9.1%)
• Personal family assets other than savings came next (8.7%)

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. In 2021, 6.2 million people were unable to work due to closed businesses.

(Source: BLS)

• Due to COVID-19, 34% of America’s small businesses are still closed.
• In 2021, 5.4 million new business applications were filed.
•   Over 400,000 new businesses were established in the United States in the first quarter of 2021.

It’s no coincidence that the number of closed and open businesses is high in 2021 and 2022.  The pandemic changed the small business game radically.  And what happens to small businesses after a few years of working? What percent of businesses fail within 5 years? On average only 55% of them survive past their fifth year in business.

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

9. Small businesses are the victims of 43% of cyber attacks in the last year.

(Source: Fundera)

• Healthcare is the industry that’s most at-risk for cyber attacks.
• Only 22% of small businesses encrypt their databases.
• 3 out of every 4 small companies claim they lack the personnel to handle IT security.

Cybercrime poses the most serious threat to small businesses across the globe, and the US is no exception. These stats are key to understanding what percentage of new businesses fail.

10. What percentage of small businesses fail due to a data breach? 60% of the small business that experienced cyber attack, close their businesses in six months.

(Source: Fundera)

• Last year, there was a 424% spike in new small business cyber breaches.
• Human mistakes and system failure are responsible for 52% of data security breaches.
• The average cost of a data breach for a small business with less than 3000 employees is $2.98 million.

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% in the last 20 years.

(Source: ThinkAdvisor)

• They generated more than $7.6 trillion annually to U.S. GDP.
• From 31 million entrepreneurs in the U.S, 40.4% of them are women.
• Women own micro-businesses at a higher rate than males (90.3 percent versus 82.3 percent )

The number of female business owners has skyrocketed over the last two decades, affecting what percentage of small businesses fail each year. 

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: Fool)

• 22% 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.
• 13% 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.

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

(Source: Oberlo)

• As of 2021, California is the state with the biggest number of small businesses- 4.2 million
• Small business employees in California account for 48.2 % of all employees in the state, which is more than the national average.
• Texas comes second with 3.0 million small businesses
• Florida comes third with 2.8 million small businesses

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. 70% of small family businesses do not survive long enough to be taken over by the second generation.

(Source: Writers Block Live)

• Construction companies had a failure rate of 53%.
• 21% of real estate agents and brokers offices fail in the first year
• The percent of small businesses that fail in the restaurant industry, within the first year is 17%

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 percent of businesses fail within 5 years.

15. Only 40% of small businesses are 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.

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!