Business Failure Statistics & Reasons Summary

Preface:

Many visitors from abroad are surprised to learn that even today, the U.S. economy is by no means dominated by giant corporations. Fully 98 percent of all independent enterprises in the country employ fewer than 500 people.

These small enterprises account for 52 percent of all U.S. workers, according to the U.S. Small Business Administration (SBA). Some 19.6 million Americans work for companies employing fewer than 20 workers, 18.4 million work for firms employing between 20 and 99 workers, and 14.6 million work for firms with 100 to 499 workers. By contrast, 47.7 million Americans work for firms with 500 or more employees.

Survival Rates

The Small Business Administration (SBA) new statistical findings show two-thirds of new businesses survive at least two years, and 44 percent survive at least four years. As a general rule of thumb, the SBA states new businesses have about a 40% chance of surviving for five years or more.

According to the National Federation of Independent Business (NFIB) over the lifetime of a business only 39% are profitable. Another 30% of business break even, the other 30% lose money and 1% cannot say.

New research from the U.S. Bureau of Labor Statistics suggests that most failures of American startups will occur in the first two years of their existence. After that, the rate of business failure slows.

18% of new businesses fail within a year; another 17% close in their second year. The data show that, across sectors, 66 percent of new establishments were still in existence 2 years after their birth, and 44 percent were still in existence 4 years after. But that means that 56% of new companies fail within 4-years. It is not surprising that most of the new establishments disappeared within the first 2 years after their birth, and then only a smaller percentage disappeared in the subsequent 2 years. These survival rates do not vary much by industry.

David Birch, a former head of a research company formulated the following percentage rates for small business success in the first through tenth year:

First Year – 85% success 15% Failure
Second Year – 70% success 30% Failure
Third year – 62% success 38% Failure
Fourth Year – 55% success 45% Failure
Fifth Year – 50% success 50% Failure
Sixth Year – 47% success 53% Failure
Seventh Year – 44% success 56% Failure
Eighth Year – 41% success 59% Failure
Ninth Year – 38% success 62% Failure
Tenth Year – 34% success 66% Failure

Reasons Businesses Fail

SBA

1. Lack of experience
2. Insufficient capital (money)
3. Poor location
4. Poor inventory management
5. Over-investment in fixed assets
6. Poor credit arrangements
7. Personal use of business funds
8. Unexpected / Unplanned growth
9. Failure to Compete Effectively
10. Low sales

Harvard Business Review

1. Poor marketing
2. Cash flow problems
3. Poor business planning
4. Lack of finance
5. Failure to embrace new technologies and new developments
6. Poor choice of location
7. Poor management
8. Poor human resource relations
9. Lack of clear objectives

Business Now Magazine

1. You start your business for the wrong reasons.
2. Poor Management
3. Insufficient Capital
4. Location, Location, Location
5. Lack of Planning
6. Overexpansion
7. No Website

University of TN Study

1. Incompetence 46 %
2. Unbalanced Experience or Lack of Managerial Experience 30 %
3. Lack of Experiences in line of goods or services 11 %
4. Neglect, fraud, disaster 1 %

DEMC

1. Fail to establish a team.
2. Fail to establish a precise niche.
3. Fail to create a Unique Selling Proposition (USP)
4. Fail to organize
5. Fail to Communicate Effectively
6. Fail to market

Statistic Brain

1. Incompetence 46%
2. Unbalanced Experience or Lack of Managerial Experience 30%
3. Lack of Experiences in line of goods or services 11%
4. Neglect, fraud, disaster 1%

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