Starting a new business can be tough, especially if you have no prior experience. Maintaining one is also very challenging and requires a separate set of skills and understanding of running a business.
Here’s a look at the percentage of businesses that fail within the first five years of establishment.
New business failure rate: first five years
According to the latest statistics on the percentage of businesses that fail in the United States, we see that of the 733,721 new businesses that were started in 2018, more than one-fifth (20.6%) closed in 2019, after just one year in operation.
Considering the risks, challenges, and uncertainty involved in running a business, it should come as no surprise that the statistics show that more entrepreneurs either chose to or were forced to shut their businesses as the years pass.
The percentage of businesses that fail increased to 31.3% in the second year (2020) and 37.9% in the third year (2021). In other words, fewer than two-thirds of the businesses that started in 2018 remained in operation three years on.
In their fourth year (2022), 42.7% had shuttered and by the fifth year in 2023, the new business failure rate reached 48%. These numbers show that only around half of the businesses that started in 2028, or 381,337 of them, to be exact, were still surviving half a decade on.
Looking at it on a year-to-year basis, the average annual rate of business failure from 2019 to 2023 for companies started in 2018 stands at 12.1%. In other words, 12.1% of the remaining businesses that started in 2018 fail each year.
Factors behind the rate of business failure
While there are many factors that contribute to the new business failure rate, there are some that are more common than others.
Among the top reasons startups fail include lacking monetary means to keep the business going, poor market timing, and an inadequate business model.
To avoid this problem, it is important to conduct thorough research and have a thorough and realistic business and financial plan before launching the business. These will help you prevent failure by providing a strong enough foundation to ensure your business persists through the initial tough years.
Other top reasons many new businesses fail within the first five years include subpar marketing, inflexibility, and overambition.
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