Small Business Failure Statistics to Know in 2024 - A Realistic Picture
One of the first things people do when they decide to start their own business is look for some advice online. Unfortunately, the web is littered with staggering figures that seem to intentionally discourage young entrepreneurs from taking the plunge.
On the other hand, there are some websites that focus solely on the blue skies and don’t even dip a toe into the dark pond of failed businesses. Don’t worry, though; our small business failure statistics are comprehensive and realistic. You’ve come to the right place.
We’ve carefully analyzed and compared dozens of sources to paint a realistic picture of the entrepreneurial world today. We don’t want to artificially get your hopes up or kill your dreams before they come to life. Instead, we want to present you with concrete facts about the failure rates of small businesses.
If you know the main reasons most businesses struggle, you can prepare accordingly and give yourself the best chance of succeeding. This information can help you decide which industries and demographics you should target, and which traps to avoid. Most importantly, it can give you hope that where there’s a will, there’s a way.
The road ahead is long and fraught, but we believe you can succeed. Let’s get started.
Small Business Failure Stats for 2024 - Editor’s Choice
- Only 79.1% of small businesses in 2022 survived their first year.
- The information sector had the highest first-year failure rate of 26.4% in 2022.
- Business owners under 30 years of age are more likely to fail.
- The most common reason small businesses fail is that the market simply doesn’t need their products or services.
- 44% of businesses fail because they run out of cash.
- Only 17% of restaurants fail in their first year.
Some 79.1% of small businesses in 2022 survived their first year.
(Bureau of Labor Statistics)
New beginnings can be tough, especially for entrepreneurs. For about 20.9% of newly opened small businesses in 2021, the journey ended before the first year was over. Only about half of businesses manage to reach their fifth fiscal year. And there aren’t many that manage to stay open for a decade.
Research shows that, on average, only one-third of all entrepreneurships get to celebrate their 10th birthday.
The small business failure rate has declined by 30% since 1977.
If our opening fact seemed dark, we hope this data about the growing success rates of small businesses will brighten your mood. The good news is that you now have a 30% better chance of creating a successful business than you would have in the late ‘70s.
This is according to Scott Shane, a university professor who believes that smarter business owners are behind this increased success. Indeed, entrepreneurs nowadays have access to a lot more resources to learn from. It’s also much easier for them to communicate with other owners and establish symbiotic business partnerships.
Business owners under 30 years of age are more likely to fail.
A number of factors determine whether a business will be successful or not. Experience is one of them. Small business failure data shows that entrepreneurs over 30 have a slightly better chance of succeeding. This age factor becomes clearer when you look at the high achievers who belong to the top 0.1% growth group. Only 0.09% of owners under 30 reach these heights, compared to 0.17% of over-30 entrepreneurs. It seems that, in this case, experience makes all the difference.
Some 17% of restaurants fail in their first year.
For many Americans, successfully running a restaurant seems like an impossible dream that is destined to fail from the start. That’s because the internet is full of doomsayers that claim at least 90% of restaurants fail in their first year.
As this study shows, that is ridiculously far from the truth. In fact, 83% of full-service restaurant startups reach the one-year mark, while the median lifespan is 4.5 years. This source is a lot more reliable than internet hearsay; its calculations were based on data from 81,000 restaurants over a period of 20 years.
71% of small businesses in Canada fail due to management issues.
This refers to both financial and general management issues, so it’s safe to say that a lack of cash is a problem in Canada, too. According to this data, the biggest problems with financial management are the inability to manage working capital and under-capitalization. Almost half of the companies surveyed (49%) had a lack of managerial vision, which eventually led to their downfall and bankruptcy.
The healthcare and social assistance industry has the highest survival rate for small businesses.
The Bureau of Labor statistics from 2002 to 2022 tell us that the healthcare and social assistance industry is the most fertile ground for startups. In 2022, after 20 years of existence, 23.4 % of businesses in this sector managed to stay operational, while only 19.9% of businesses closed down after just a year of work. On the other end of the scale is the information industry, with 26.4% of businesses failing after one year in 2022.
Why Do Small Businesses Fail?
47% of startups in 2022 failed because of the lack of financing.
Skynova carefully analyzed 500 startup founders that closed down in order to determine why they failed. Researchers found that almost half the companies on the list shut their operations down because of the lack of financing or investors. The latest numbers show that 370% more startups in 2022 failed due to this reason compared to 2020.
44% of small businesses fail because they run out of cash.
Having a small business can be an expensive venture, especially if you’re just starting out. According to small business failure statistics, nearly half of startups in 2022 didn't make it because they simply run out of cash. This makes sense considering that 67% of owners use personal funds to deal with their financial crisis, which can become extremely costly in the long run.
5% of businesses fail because of not assembling the right team.
A functional team of professionals is essential for every business. Of course, creating such a team is easier said than done. You have to take into consideration different personalities, skills, and how they all work together. It’s no wonder that recent statistics tell us 62% of entrepreneurs choose not to have any employees at all. This reduces costs and avoids the risk of incompetence or laziness creeping into your business, but it also limits your business’s ability to grow.
14% of small businesses fail because they ignore their customers’ needs, while the same number fail because of poor marketing skills.
When you’re starting your small business, you need to know not only what you’re selling, but also to whom you’re selling it. Getting acquainted with your target audience is half the work. The other half is catering to your users’ specific needs.
The small business survival rate indicates companies that ignore their customers’ problems usually have a greater risk of failing. This overlaps with poor marketing skills. After all, good marketing means adapting to the user-focused world of the 21st century.
7% of small businesses fail because their competition out-performs them.
Most of the time, having a good business idea just doesn’t cut it. You also need to know how to present your idea, build upon it, and keep a keen eye on what your competition is doing. Small business failure data shows us that 7% of all small businesses get beaten by their competition because they don’t pay enough attention to their surroundings, but the numbers last year were far lower than in 2020, when 21% of small businesses failed due to market competition.
For 21% of businesses, disagreements between the workforce, owners, and investors leads to failure.
We’ve already mentioned the importance of finding the right team for your small business, with a significant number of people having a tough time with his. Of course, that doesn’t relate only to employees. A high percentage of small businesses that fail do so because of disagreements between the founders, staff, and investors.
To prevent this from happening, it’s essential to clearly define everyone’s role and rights at the beginning so there aren’t any misunderstandings later on. The same can be said for investors, who often have unrealistic expectations of what the business can achieve.
7% of small businesses collapse because they lose focus, and the same number are doomed by their failure to pivot.
When your product is not delivering the results you expected, you might have to consider a different approach or a new direction altogether. The failure rate of small businesses shows there’s no shame in admitting defeat, especially if there’s a potential success down another path.
Of all the companies analyzed, 7% failed because they simply lost focus, while 7% failed to make the necessary changes.
7% of small businesses in 2022 failed because of pricing issues.
Choosing the perfect price for your product can be problematic. It’s a double-edged sword; if the price is too high, you’ll drive away potential customers and destroy your reputation on the market. On the other hand, if you short-sell yourself, you might not earn enough to keep your company afloat.
It may seem like a minor detail, but according to this research, it leads 7% of companies to ruin. Balance is the key.
7% of small businesses fail due to unsuccessful geographical expansion.
The success of any business depends largely on the owner’s ability to analyze the market and see where his or her product fits in. This analysis is even more important when it comes to entering an unknown area.
If not done properly, this step can be fatal. Indeed, failed expansion is a contributing factor for 7% of businesses that go under. Geographical expansion can also cause additional stress for remote teams due to communication problems and cultural differences.
33% of small business in 2022 failed due to the impact of the COVID-19 pandemic.
While the 2020 pandemic is by all means behind us now, the number of startups naming it as the primary reason for their failure is still incredibly high, even though it dropped from 59% in 2021.
16% of small businesses fail due to burnout problems.
While hard work is essential to success, especially in times of economic uncertainty and inflation pressures, burning yourself out can be even more detrimental than giving yourself time to breathe, which is why nearly a fifth of startup founders in 2022 named burnout as the main reason they closed down.
How to Avoid the Death Knell
58% of business owners believe spending time with family in the evening is crucial for their effectiveness at work.
Getting lost in the vast and complex world of entrepreneurship is quite common among business owners, but it can also lead to copious amounts of stress. In turn, this makes them less productive and efficient at work.
In a small business survey by Xero, more than half of business owners said it was necessary to unwind with family on a daily basis to achieve maximum effectiveness at work. Having a free weekend with loved ones every week is a priority for 53% of business owners. Indeed, according to statistics on small business failures from 2022, 16% of companies that fail do so because of burnout brought on by poor work-life balance.
86% of companies invest in technology to improve their productivity.
Small businesses that want to keep up with the competition need to invest in new technologies and offer their customers a more user-friendly experience. For that reason, 49% of businesses use mobile apps to connect with users. Another 32% add a mobile payment option to ensure easy purchases. And in order to avoid becoming another failed startup, 26% of small businesses use business-planning tools to make sure their productivity is at an all-time high.
Businesses that sell services rather than products have a better chance of survival.
Xero’s research found that small business failure rates are a lot lower among businesses that sell services compared instead of products. With a survival rate of 59%, companies that sell services have a much better chance of pulling through than the ones that focus on products. According to the research, failed companies mainly sold to individuals (49%), while only 28% of surviving businesses did the same.
What are the most common causes of small business failure?
Based on a survey by CB Insights, 42% of small businesses that fail do so because there’s no need for their product or service on the market. Other important causes include running out of cash, having a bad team, getting beaten by the competition, and being unable to set the right price for their products or services.
What percentage of small businesses fail?
Research shows that 21.5% of small businesses fail after just a year. About half of all small businesses make it to their fifth year of work, while only a third survive a decade. Only 17% of full-service restaurants fail in their first year.
How can small businesses avoid failure?
The most important thing to do before deciding to start your own business is to carefully analyze the market, examine the available small business failure statistics, and see where your business might find its place. You need to come up with a working business model, assemble a well-functioning team, and listen to your customers.
For years, the clients I worked for were banks. That gave me an insider’s view of how banks and other institutions create financial products and services. Then I entered the world of journalism. Fortunly is the result of our fantastic team’s hard work. I use the knowledge I acquired as a bank copywriter to create valuable content that will help you make the best possible financial decisions.