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 733,286 new businesses that were started in 2017, more than one-fifth (20.9%) closed in 2018, 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 latest 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 31.4% in the second year (2019) and 39.3% in the third year (2020). In their fourth year (2021), 44.5% had shuttered and by the fifth year in 2022, the new business failure rate reached 48.4%.
That means that only around half of the businesses that started in 2017, or 378,596 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 2018 to 2022 for companies started in 2017 stands at 12.2%. In other words, 12.2% of the businesses that started in 2017 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 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.