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As a small business, it is important to be aware of the potential for failure. A recent study by the University of North Carolina found that more than 50% of small businesses fail within the first five years. 

While there are many factors that can contribute to a business’s failure, understanding the most common reasons can help you avoid them. 

We’ll take a look at some of the most prevalent small business failure rate and how many businesses fail each years and what you can do to increase your chances of success.

On this page, we are going to cover the details for Small Business Failure Statistics.

How Many Small Businesses Fail Each Year

On average, about 172,000 small businesses fail each year. This is about 21% of all businesses that start up each year.

How Many Small Businesses Fail Each Year

Since, there are estimated 750K new businesses open each year based on data from the last 3 years. And, according to the latest statistics, about 21% of new businesses fail in the first years.

So, based on that, we find that about 172K businesses fail each year. There are many reasons why small businesses fail, but the most common ones are a lack of capital, no market need for their product or service, and poor management.

How Many Small Businesses Fail In The First 5 Years

About 1.25 million small businesses fail in the first 5 years according to the calculation from data from Small Business Advocacy. 

How Many Small Businesses Fail In The First 5 Years

Many factors can contribute to a small business’ failure, but the most common reasons are financial instability, a lack of planning and poor marketing.

To avoid becoming one of the statistics, make sure your business is financially stable by developing a realistic budget and forecast, and make a concerted effort to market your business both online and offline. Stay positive, stay motivated and never give up on your dream!

Percentage Of New Businesses That Fail In The First Year

According to the Small Business Administration, about 21% of businesses fail in their first year.

Percentage Of New Businesses That Fail In The First Year

About one-third of businesses survive their second year, and about half survive their fifth year. The main reasons that businesses fail are lack of capital, poor management, and competition.

Small Business Failure Statistics (In General)

  • About 79 % of small businesses survive their first year, which means only 21% of small businesses fail in first years.(Office of Advocacy)
  • More than 50% of new businesses fail within five years.
  • 70% of small businesses fail in their 10th year.
  • 82% of businesses that failed cited cash flow problems as a factor in their failure (Entrepreneur)
  • For 33% of small business owners, the greatest challenge is a lack of capital (Guidant Financial) 
  • 60% of small businesses are not profitable(SmallBizTrends)

1. About 79 % of small businesses survive their first year

 small businesses survive their first year

Running a small business is hard work. You have to be willing to put in the time and effort right from the start, because getting a small business off the ground is not easy.

 But it’s worth it in the end – keep your nose to the grindstone, work hard, and remember that while you’re passionate about what you do, entrepreneurship takes capital. Make sure you have savings tucked away before launching your own venture.

(Office of Advocacy)

2.82% of businesses that failed cited cash flow problems as a factor in their failure

businesses that failed cited cash flow problems as a factor

Cash flow management is a critical part of business success, and one that should not be ignored if you’re looking to build a sustainable and profitable operation. 

Financing is without a doubt one of the most challenging aspects of any business, especially small ones, but it doesn’t have to be. From startups to veteran firms, cash flow management will never go out of style, so it’s key that you find the right techniques for managing your company’s funds. 

(Entrepreneur )

3.For 33% of small business owners, the greatest challenge is a lack of capital

For 33% of small business owners, the greatest challenge is a lack of capital

Although there are many ways to fund a small business, having access to capital is not always easy. While a business may begin with the owner’s finances or savings, this capital is seldom sufficient to sustain the business without outside help. 

Business owners can use an array of tools to secure funding, but it is a lengthy process to find the right one for their needs and their business requirements. Many lenders require entrepreneurs to adhere to strict guidelines, while other funding sources offer insufficient funds or terms that make them unattractive.

(Guidant Financial) 

4.60% of small businesses are not profitable.

small businesses are not profitable

The results of this study suggest that a lot of businesses are profitable, but many more are not. The entrepreneurs behind these non-profitable businesses blamed a lack of growth and unexpected costs as the major contributors to their losses. 

From a personal standpoint, these are two issues with very simple solutions: research your market and create realistic financial goals.

(SmallBizTrends)

5.More than 50% of new businesses fail within five years.

new businesses fail within five years

If you’re like most entrepreneurs, then you’ve probably been working hard on your business idea in the hopes that it will one day turn into an established company. But have you ever stopped to really consider how long it will take you to achieve this goal? 

If you don’t understand the process behind getting your business started, then you risk making decisions without considering all of your options or knowing whether they fit within a larger business plan. Don’t let poor planning ruin what could be a great idea for your future career.

Final Thought

So why are so many businesses failing? If you’re thinking about starting your own business, don’t be discouraged by these statistics. 

Take these facts into consideration, but realize that you have a better chance of succeeding than most. Just remember to research your market thoroughly, find the best way to stand out from the competition, and keep growing in order to reach your goals.

FAQs

Do most small businesses fail?

Yes, most small businesses do fail. A 2012 study by the U.S. Small Business Administration found that about two-thirds of businesses don’t make it past their first year, and about half don’t make it past their fifth year.

There are many reasons why small businesses fail, but the most common ones are lack of capital, lack of experience, and poor planning.

If you’re thinking about starting your own business, it’s important to do your research and to plan carefully. And if you’re already running a small business, be sure to stay on top of your finances and keep track of your progress so that you can course correct if necessary.

Why do businesses fail in the first 5 years?

Answer: Many businesses fail in the first 5 years because they don’t have a solid business plan and they don’t put in the hard work to make their business successful.

Businesses often fail because the owners don’t do their research and they don’t have a good understanding of what it takes to run a successful business. They might not have a clear vision for their business, or they might not know how to market their products or services.

Owners also need to be prepared to work hard and put in long hours if they want their business to be successful. There’s no magic formula for success, it takes dedication, commitment, and hard work. So if you’re not prepared to hustle, then your business is likely to fail.

How do you protect yourself if your business fails?

There’s no one-size-fits-all answer to this question, as the best way to protect yourself from the risks associated with business failure will vary depending on your individual situation. However, some tips to help you reduce the chances of your business failing include:

1. Doing your research – before starting a business, it’s important to do your homework and make sure you have a solid understanding of both the industry and the market you’re entering. This will help you make informed decisions about things like what products or services to offer, who your target market is, and how to price your products or services.

2. Building a strong team – one of the biggest factors in determining the success or failure of a

Source

Entrepreneur

Guidant Financial

SmallBizTreands

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