Whether you have the vision to launch your own small business or already set up one, there is one thing that probably bugs you the most, as an aspiring entrepreneur: Will my business succeed? Many variables contribute to the success of your startup–your products, your workforce, your customer service and many other things. However, regardless of the cause of success or failure, the stats are there in our faces and are quite revealing–here is what we have found regarding when small businesses survive and why they do.
How many businesses can make it through the first five years?
When it comes to actual business fail figures, we have to ask ourselves: how many make it through the first year? How many on their second or third years? And finally how many can make it through their fifth year or even more than that?
According to this report by the SBA (Small Business Administration), only 50% of small firms make it through their fifth year. Additionally, the U.S. Census Bureau data reveal that every year 400,000 new enterprises are launched
Here are some specific reports per year/timing period:
- Around 4 in 5 (80%) small firms will survive their first year in business (as of March 2016). This is of course not bad as the companies may test out the waters but as you can see from the figures that follow, surviving another year is a great challenge that only a few can tackle.
- Around 2 in 3 (66%) of small businesses will make it through their second year (as of March 2016).
- About 1 in 2 (50%) of small firms will successfully stay in business for their fifth year (as of March 2016)
- Finally, only 30% (1 out of 3) business will remain in business for their 10th year.
As we can see here, the more years pass, the greater the challenge and actual odds of staying in business which is something that raises real concerns among aspiring entrepreneurs.
However, there are some things to consider when seeing and interpreting these statistics besides time. First of all, what does failure exactly mean? Do this figures include only businesses that have closed down through time or is the company that has been merged and sold to other companies involved as well? Also, do these figures apply to all business types on average or just specific ones.
The answer to the first is not exactly clear given the current resources and data. However, some figures show which businesses tend to succeed the most and which industries tend to fail more often.
The most viable industries
Among the top business sectors that survive their first years the most, is the healthcare and social sector. If you have studied or currently are an employee in healthcare or social provider, things look more prosperous for you like 75- 85% of healthcare and social firms can make it through their first two years whereas more than half (around 60%) will survive their first year in the field. Not bad at all considering the success and failure rates of other businesses.
The least successful industry/is
One for some fields, the prospects look brighter, in some other field things are not much favorable. One such industry is the sector of warehousing, transportation, and construction. In the construction field, a 75% of firms make it through their first year while as the second year progresses, a 65% can make it and finally, only 35% of businesses in this industry will survive five years in business. Mostly, 75% construction field terms will fail to stay in business for five years or more. Similar figures note that in the transportation and warehousing industry–a bit more than 3 out of 4 will make through their first year whereas only 40% will make it to their fifth year.
Now, some industries that controversial regarding whether they are lucky or challenging. Such case is the culinary industry. We all heard at least one from experts how challenging is to open and keep a restaurant, but the actual figures don’t back up these claims.
First of all, 85% of restaurants will make it through their first year, a 70% will make it to their second year, and finally, 50% and 35% will survive the first years and ten years respectively. Not the best rates but not the worst either if we think about it.
So Why Do Small Businesses Fail?
This is a million dollar question. There are quite a few reasons why this happens, but there are some common causes that apply to most. One such common cause is the cash flow/liquidity problems. As a matter of fact, 82% of small firms weren’t able to make it because of cash flow issues. Other causes are:
- Too small or inexistent market for their respective products and services (42%)
- Lack of proper management and team behind it (23%)
- Beaten by competitors (19%)
- Pricing and cost problems (18%)
- Failed marketing (14%)
- Lack of proper customer service (14%)
And among the least common yet still important causes are a bad location. Legal problems, lack of coordination, owner burning out, and lack of vision and passion.
Capital also seems to play a big part in the success or failure of the business. As of 2015, around 73% of firms were able to gain capital for their business, and 27% did not. Bank loans are also not issued to everyone, and 77% of small entrepreneurs who apply for a bank loan don’t get accepted.
Now, if we try to gain a general picture out of these figures, we’ll see that launching a small business is risky and takes tough work to make it through the first year of operations. However, as small businesses are still the back and bone of our economy, there is no real reason to get discouraged.