+27 Small Business Failure Statistics You Shouldn’t Ignore In 2023!

In this post, I have gathered small business failure statistics from some of the most authoritative organizations in the space to give you an accurate view of how small business failure is perceived, its history, future, and other characteristics.

Before I get into the statistics I think it’s important to get on the same page in regards to what a small business is and what is considered a failure in the context of this article.

So let’s start with that.

What is considered a small business?

What people consider a small business differs a lot this is why it’s important to have a clear definition so that you have the right perspective when going through these statistics.

For this article, I’ll go with the definition that is used by the SBA’s Office of Advocacy. They consider a small business an independent business with fewer than 500 employees.
Source. (SBA)

What is considered a failure?

Just like the term small business, people tend to have different ideas of what they call failure. Failure could be going bankrupt, never reaching the break-even point, splitting up with your business partners, etc.

In the context of this article, the moment the business can’t sustain itself anymore and is forced to close down.

My Top Picks

Since I value your time, I wanted to leave you with what in my opinion, are the most essential stats in this article. You can proceed to read the rest of the article if you want more context regarding these statistics.

20% of businesses fail in the first year.
30% of businesses fail in the second year.
50% of businesses fail in the fifth year.
70% of businesses fail in the tenth year.
The professions with the highest failure rates are Retail – 53%, Transportation & Utilities – 55%, and Information – 63%.
The industry with the highest survival rate is the healthcare and social assistance industries

(SBA, EU-Startups, Forbes)

Small Business Popularity Statistics

The role of small businesses in the US economy

Small businesses comprise:
• 99.9% of all firms
• 99.7% of firms with paid employees
• 97.4% of exporters (280,496)
• 46.8% of private sector employees (61 million)
• 43.5% of the gross domestic product
• 39.7% of private sector payroll
• 35.6% of private sector receipts ($13.3 trillion)
• 31.6% of known export value ($460 billion)

It’s safe to say a significant part of what sustains the US economy is small businesses.

Source. (SBA)

How many small businesses are there in the US?

There are 33,185,550 small businesses in the United States.
Small businesses employ 61.7 million Americans, totaling 46.4% of private sector employees.

Source. (SBA)

How many businesses on average are started per year?

On average, there are 4.4 million businesses are started every year.
Source. (SBA)

How many US-based businesses were started in the last year?

According to the US Census Bureau, 5,044,748 new businesses were started in 2022.
Source. (UCB)

Small Business failure rate

The percentage of small businesses that fail by year

One of the most mentioned stats when it comes to small businesses is that 50% of small businesses fail. This isn’t the complete story of how many small businesses fail.

It seems business failure occurs over the years at a seemingly linear rate. Here’s a look at the business failure rate over 10 years according to multiple studies.

Year 1 – 20%
Year 2 – 30%
Year 5 – 50%
Year 10 – 70%

(Forbes, BLS)

Small Business failure rate by profession/ sector

Not every sector is created equal when it comes to business failure. It seems the highest failure rate is in the sectors Information, Transportation & Utilities, and a tie between retail and construction.

Finance, Insurance, and Real Estate – 42%
Education and Health – 44%
Agriculture – 44%
Services – 45%
Wholesale – 46%
Mining – 49%
Manufacturing – 51%
Construction – 53%
Retail – 53%
Transportation & Utilities – 55%
Information – 63%

(Failory)

What type of business has the highest failure rate (in the first year)?

The type of business with the highest failure rate in the first year tends to be in the professional, scientific, and technical services industries with 19,4%.

It’s an industry that brings in a lot of revenue but also is constantly advancing. This is by many perceived as the reason for such a high failure rate in the first year.
Source. (CBI)

How many US entrepreneurs have fears about startup failure?

In the United States, 43% of entrepreneurs have fears about startup failure.

Source. (GEMC)

The success percentage for first-time founders is 18%

Failure seems to be an important part of entrepreneurship. It’s also inevitable for the majority of entrepreneurs that are trying to build a successful business.

Most people don’t succeed on their first try. This is why it’s important to dissociate startup failure from considering yourself a failure and see if you can find something that fits you.
Source. (EXPLTOPICS)

Why do small businesses fail?

The top 12 Reasons startups fail

38% ran out of cash/ failed to raise capital
35% No market need
20% Got outcompete
19% Flawed business model
18% Regulatory/ Legal challenges
15% Pricing issues
14% Not the right team
10% Product mistimed
8% Poor Product
7% Disharmony among the team
6% Pivot gone bad
5% Burned out/ Lack of passion

Source. (CBI)

Funded-start-up failure statistics

You might’ve seen movies such as the social network where the moment investors got involved the business seemingly skyrocketed but in most cases, this isn’t a guarantee for success.

This is what statistics say about venture-backed companies:

75% of venture-backed companies never return cash to investors
30-40% of the cases, investors lose their initial investment.

Raising money and getting a high company evaluation can be incredibly helpful but that doesn’t mean it’s necessarily successful. Producing a profit should always be the main focus of your business.

Source. (WSJ)

How to survive as a small business?

The industry with the highest survival rate is the healthcare and social assistance industries

We have talked about the small business industries with the highest failure rate now let’s focus on the industries with the highest survival rate.

According to statistics, Healthcare and social assistance industries have the highest survival rate.

Just like the professional, scientific, and technical services industries it’s constantly evolving but what seems to be the difference is that there is a high need for service in these industries.

These are industries that are essential for keeping the world standing and as a result, drastically increase the chances of businesses surviving in this space.
Source. (CBI)

Does pivoting affect business survival?

Pivoting has been mentioned a lot in books such as the lean startup not only as a way to keep your company alive but also as a tool to do market research but how much does it affect business survival?

According to studies:

Startups that pivot 1-2 times have 3.6x better user growth and raise 2.5x more money.
Startups that pivot 0 times or more than 2 times do considerably worse.

This doesn’t mean it’s essential to pivot even when you’re doing well but you shouldn’t be afraid to pull the trigger when necessary.
Source. (FAIL)

How does the future look for small businesses?

Small Business Optimism

The results of a survey done in June 2023, reveal that a net 17% of small business owners that participated had plans to increase in employment in the next 3 months. 45% also shared that they had current job openings.
Source. (STAT)

77% of small businesses are optimistic about the future

In one of the latest surveys of the U.S. Chamber of Commerce, the Small Business Index revealed that 77% of small business owners are optimistic about the future of their business, and 62% reported that their business is in good health.
Source. (US CHAMBER)

The most important problem for small businesses in comparison to the previous year

On Statista, the results of a survey done in June were published at the end of Q2 2023 involving not only start-ups but all small businesses and their biggest concerns.

They phrased the question as this:

“…What is the single most important problem for your business?..”

24% mentioned their biggest concern was inflation while in the previous year, it was the biggest concern of 34%

24% mentioned that their biggest problem was the quality of labor. In the previous year, this question was asked 23% identified this as their single most significant problem.

15% mentioned that taxes are their single most significant problem while in the previous year, it was 11% identified this as their biggest problem.

These problems were seen as the biggest problem by a lot of small businesses.

As you can see, the biggest changes occurred in the number of businesses worried about inflation and taxes.

Inflation seems to become less of a problem while taxes seems to be increasing as a problem for small businesses.
Source. (STAT)

Final Words

Numbers show a high rate of small business failure but if you’re planning to start your own business this shouldn’t discourage you. There are a lot of factors at play as you can see in this post that have an influence on your chances of success.

I hope by sharing these statistics you’ll have a better idea of where to start and show you how to hopefully avoid the biggest reasons for failure. It’s undoubtedly risky to start a business but there’s a lot of upside if you succeed.

Sources:

failory.com/blog/startup-failure-rate

explodingtopics.com/blog/startup-failure-stats

gemconsortium.org/file/open?fileId=50900

advocacy.sba.gov/wp-content/uploads/2021/12/Small-Business-FAQ-Revised-December-2021.pdf

advocacy.sba.gov/2023/03/07/frequently-asked-questions-about-small-business-2023/

babypips.com/forexpedia/nfib-small-business-optimism-index

forbes.com/advisor/business/small-business-statistics

eu-startups.com/2021/03/when-is-a-startup-no-longer-a-startup