Published November 27, 2021 by WC Team

What Percentage Of Small Businesses Fail?

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There is a lot of uncertainty ahead of you as a new entrepreneur. 

Everyone you've talked about your concept to has most likely (very unhelpfully) emphasized on how small firms fail.

You're entitled to be concerned whether they've given you correct or incorrect statistics. 

Starting a small business is a significant risk. You don't know how your product will grow or whether you'll qualify for a small business loan. And if you'll survive the numerous hurdles of running a small business.

Percentage Of Small Businesses That Fail

According to data from the Bureau of Labor Statistics around 20% of small firms fail in their first year. And over 50% of small enterprises fail in their fifth year. 

However, it is also useful to consider this number in terms of how many small firms in the United States survive. The survival rate is as follows according to the Bureau of Labor Statistics Business Employment Dynamics.

Approximately 80% of enterprises with workers will survive their first year in operation. (According to the most recent data 79.8 percent of small firms that launched in March 2016 survived till March 2017.)

Approximately 70% of enterprises with workers will survive their second year in operation. (According to current data 69.2% of small enterprises that launched in March 2015 survived to March 2017.)

Approximately half of all enterprises with workers will survive their fifth year in operation. (According to data 50.2% of small firms that launched in March 2012 survived till March 2017.)

Around 30% of enterprises will survive their tenth year in operation. (According to the most current data 33% of small firms that launched in March 2007 survived till March 2017.)

Industries With The Best Success Rates

You're in luck if you want to start a business in the health care or social support industries!

Businesses in health care and social assistance often have the best survival rates. Furthermore, according to the Bureau of Labor Statistics, the health care and social assistance business is expected to increase by 21%. It is the highest pace of growth in comparison to any other industry.

Approximately, 85% of small enterprises in this field survive their first year and 75% survive their second year. While only 60% survive their fifth year.

Industries With The Lowest Success Rates

Historical data appears to be favorable for the health care and social assistance industries. But it does not appear to be favorable for the construction, transportation and the warehousing industries.

In the construction sector around 75% of enterprises survive their first year. 65% survive their second year. And approximately only 35% survive their fifth year.

The transportation and warehousing industries aren't any better. A bit more than 75% of enterprises survive the first year. Slightly more than 65% survive the second year. And around 40% survive the fifth year in operation.

Small Business Access To Capital

Let's go over a few statistics concerning small business funding that you should be aware of. Because access to finance and cash flow concerns play such a significant role in business failures. 

In 2015, 73% of small company owners reported being able to obtain sufficient finance for their operations. Implying that 27% of business owners were unable to access sufficient capital to conduct their operations. 

Of the 27% business owners that were unable to obtain funding 57% indicated a shortage of money has no impact on their firm. 33% shared this has made it difficult for them to build and expand their firm. A shortage of money led 18% of respondents to cut personnel expenses.

15% stated that they were unable to fund greater sales. Only 12% stated they had to cut employee benefits.

10% stated that they were unable to increase inventories to satisfy demand. In 2015, 40% of surveyed business owners used a bank loan to fund their operations.

However, 77 percent of small company owners who request a bank loan from a large bank are turned down. 

Approximately 52% of small company owners who request a bank loan from a small bank are denied. Alternative financing has the highest acceptance rate with alternative lenders accepting over 60% of company loan applications in 2016.

How To Succeed In Your First Year Of Business

People have grand ideas and rush in before fully comprehending what their firm can provide.

Raymond is a SCORE mentor that assists new business owners in developing "short and sweet" business plans. These plans comprise an executive summary, a description of the company's aims as well as objectives, a marketing strategy, an operations plan, a management plan and a finance plan.

"The written company strategy and financial plan as well as the cash flow estimates are vital for getting started" Raymond explained. 

"The rest of it kind of falls in line if you have a nice solid financial base to carry your firm forward and a solid set of goals and objectives.”

There is a lot of capital available for businesses but it is usually only available to people who have good personal credit. 

Raymond urges company owners to use AnnualCreditReport.com to acquire free personal credit reports from Experian, Equifax and Transunion in order to boost their credit scores. Examine your credit reports and alert the credit bureaus of any errors.

In addition, contact any creditors with whom you are in arrears right away and make plans for repayment. Get those credit agreements in writing, send copies to each credit bureau and stick to them.

Every new business has to be cautious. You can find yourself writing more checks than you're receiving. 

To keep expenditure low just cut costs wherever feasible and discover ways to make your operations as efficient as possible.

You'll be putting your best foot forward if you keep focused on that aim and on gratifying your consumers. Surprisingly 14% of failing firms stated that disregarding their clients was a key factor for their failure. 

It's easy to become engrossed in your own goals but success comes from always keeping your client first.

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