Percentage of Businesses That Fail
Starting a new business can be tough, especially if you have no prior experience. Maintaining one is also very challenging.
According to the latest statistics on the percentage of businesses that fail in the United States, we see that of the 678,135 new businesses that were started in 2015, more than one-fifth (20.4 percent) closed after their first year in operation.
Considering the risks, challenges, and uncertainty involved in running a business, it should come as no surprise that the latest statistics show that more entrepreneurs chose to shut their businesses as the years pass.
The percentage of businesses that fail increases to 30.9 percent in the second year and 38.6 percent in the third year. By the fifth year in 2020, the new business failure rate reaches 50.0 percent.
That means that only half of the businesses that started in 2015, or 339,136 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 2016 to 2020 for companies started in 2015 stands at 12.86 percent. In other words, of the remaining surviving businesses that started in 2015, 12.86 percent more of them 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.
These include insufficient market research, lacking a business plan or not sticking to one, and not having enough money to keep the business running.
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.
Once a business is up and running and sales start to flow in, the business owner must learn to be flexible and adapt to new trends. Expanding too quickly can also cause a business to fail, especially if new target audiences, markets, and products and services are involved.