Thursday, January 24, 2019

What Percentage of Small Businesses Fail? (And Other Need-to-Know Stats)


Written by: 
Georgia McIntyre
Finance Writer at Fundera
Georgia McIntyre is the resident Finance Writer at Fundera. She specializes in all things small business finance, from lending to accounting. Questions for Georgia? Comment below!
What is the Small Business Failure Rate?

20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business. Finally, 70% of small business owners fail in their 10th year in business.

As a new entrepreneur gearing up to start a business, or a business owner who’s recently opened your doors, there’s a lot of uncertainty ahead of you. Everyone whom you’ve told about your idea has probably (rather unhelpfully) mentioned what percentage of small businesses fail.

Whether they’ve given you stats that are right or wrong, you’re reasonable to feel nervous. After all, opening a small business is a huge risk—you can’t be sure how your product will evolve, whether you’ll qualify for a small business loan, or if you’ll even make it through the many challenges of owning a small business.

It’s helpful to actually know what percentage of small businesses fail—because many do succeed. And you don’t want anyone scaring you out of your dream. The best thing you can do is have facts.

Let’s go through this fact, and other small business statistics you need to know.

What Percentage of Small Businesses Fail?

The fast answer for what percentage of small businesses fail, according to data from the Bureau of Labor Statistics: about 20% fail in their first year, and about 50% of small businesses fail in their fifth year. But it’s also helpful to see this statistic in terms of how many American small businesses survive. According to the Bureau of Labor Statistics’ Business Employment Dynamics, here’s what the survival rate looks like:
About 80% of businesses with employees will survive their first year in business. (The most recent data shows that, of the small businesses that opened in March 2016, 79.8% made it to March 2017.)
About 70% of businesses with employees will survive their second year in business. (The recent data shows that of the small businesses that opened in March of 2015, 69.2% made it to March of 2017.)
About 50% of businesses with employees will survive their fifth year in business. (Data shows that of the small businesses that opened in March of 2012, 50.2% made it to March of 2017.)
About 30% of businesses will survive their 10th year in business. (The most recent data shows that of the small businesses that opened in March of 2007, 33% made it to March of 2017.)

But, again, the quotable stat you need is that about 20% of small businesses fail in their first year, and 50% of small businesses fail in their fifth year.

And these rates are consistent over time. This suggests, surprisingly, that year-over-year economic factors don’t have much of an impact on how many US small businesses survive. The takeaway here is that you can pretty much bet on a 80%, 70%, 50%, and 30% survival rate across 1, 2, 5, and 10 years in business—no matter the year.

It’s important to note that this reflects all businesses in the private sector. While the overall survival rates for small businesses don’t vary much, the facts look a little different when you look at business failure industry by industry.
Small Business Survival Rates by Industry
Which Small Business Industry Has the Highest Survival Rate?

If you’re planning on opening a business in the health care or social assistance industry, you’re in luck!

Health care and social assistance businesses tend to have the highest survival rates. Also, the Bureau of Labor Statistics data shows that the health care and social assistance industry is projected to grow by 21%, which is the fastest job growth rate of any other industry surveyed.

About 85% of small businesses in this industry survive their first year, around 75% survive their second year, and about 60% make it through their fifth year.
Which Small Business Industry Has the Lowest Survival Rate?

Akthough historical data looks good for health care and social assistance businesses, it doesn’t look so great for the construction or transportation and warehousing industry.

For the construction industry, about 75% of businesses survive their first year, 65% make it through their second year, and about 35% make it through their fifth year.

The transportation and warehousing industry doesn’t look much better: A little more than 75% of businesses survive the first year, a little more than 65%survive the second year, and about 40% make it through the fifth year in business.

Debunking Restaurant Failure Myths

Have you ever been told how risky starting a restaurant is? Were your culinary dreams crushed when you heard that most restaurants fail in their first year? Rest assured: These are myths.

Here’s how business survival rates for restaurants stack up:
About 85% of food service businesses survive their first year in business.
About 70% of food service businesses survive their second year in business.
About 50% of food service businesses survive their fifth year in business.
About 35% of food service businesses survive their tenth year in business.

As it turns out, survival rates for food services are really pretty similar to other industries. But the most interesting part of this myth is that the reason why restaurants do end up failing is because they lack access to startup capital—but banks often refuse to lend to restaurants because their business is too risky.

In that case, restaurant owners—or small business owners in any other industry deemed “risky”—might look toward alternative sources of financing. Term loans or business lines of credit from online lenders, or business credit cards, are all great financing sources, and they’re generally easier to qualify for than traditional loans from banks.

See Your Business Loan Options
→Too Long; Didn’t Read (TL;DR): Businesses in the health care and social assistance industries tend to have the highest survival rates, while the construction and transportation and warehousing industries tend to have the lowest survival rates. Contrary to popular belief, restaurants are not more likely to fail than any other industry.
Why Do Small Businesses Fail?

According to Investopedia, the four most common reasons why small businesses fail are a lack of sufficient capital; poor management; inadequate business planning; and overblowing their marketing budgets. cash flow problems. But there are many more than four reasons why early-stage businesses in this country don’t survive.

CBInsights analysis of 101 startups polls the reasons why those businesses failed, according to their founders. Here were the top results:
42% of small businesses fail because there’s no market need for their services or products.
29% failed because they ran out of cash.
23% failed because they didn’t have the right team running the business.
19% were outcompeted.
18% failed because of pricing and cost issues.
17% failed because of a poor product offering.
17% failed because they lacked a business model.
14% failed because of poor marketing.
14% failed because they ignored their customers.

Clearly, there are a many reasons why small businesses fail, but a few keep coming to the top: capital access, cash flow, lack of demand, and poor management. 

A Closer Look at Accessing Capital for Small Businesses

Because access to capital and cash flow issues play such a large role in business failures, let’s run through a few statistics that you need to know about small business funding.
As of 2015, 73% of small business owners report being able to access enough capital for their business… meaning that 27% of business owners were not able to access enough capital to operate their business.
Of the 27% of business owners who could not access capital…

57% said the lack of capital had no effect on their business.

33% said this left them unable to grow their business and expand.

18% reported that a lack of capital forced them to reduce employee size.

15% reported that they were unable to finance increased sales.

12% said they had to reduce employee benefits.

10% said they weren’t able to increase inventory to meet demand.
In 2015, 40% of surveyed business owners used a bank loan to finance their businesses.
But 77% of small business owners who apply for a bank loan from a big bank get rejected.
About 52% of small business owners who apply for a bank loan from a small bank get rejected.
The best approval rate comes from alternative lending, with alternative lenders approving about 60% of business loan applications in 2016.

→TL;DR: Small businesses fail for several reasons, but the most common reasons include a lack of demand, poor management, and cash flow issues. Generally, entrepreneurs seeking small business financing found the most success with alternative lenders, rather than traditional banks.

Small Business Statistics: The Good News

If you’re looking at the percentage of small businesses that fail, it might seem like the US small business sector is completely doom-and-gloom. But many more statistics show that small business in the United States is alive and well. So, if you’re feeling down on the prospects of starting a small business, keep these five statistics in mind.
1. Women-owned small businesses are growing and surviving.

Results from an American Express study show that female entrepreneurship grew by 114% between 1997 and 2017. We have a long way to go before there’s gender equality in the entrepreneurial space, but the fact that women-owned businesses consistently outlast male-owned businesses demonstrates female entrepreneurs’ strength and perseverance.

In more good news, women own than 11.6 million firms in the US. These firms employ nearly 9 million people and, as of 2017, generated $1.7 trillion. Things are looking up for female small business owners.
2. Minority-owned small businesses are on the rise.

There’s uplifting news for minority-owned small businesses, too. According to a study by the Minority Business Development Agency, the number of minority-owned firms in the US increased by 38% between 2007 and 2016.

Additionally, the US saw a 34% increase in the number of African-American owned firms between 2007 and 2012. Also during those years, the number of Hispanic-owned businesses in the US grew by 46%.

Again, there is lots of room for these numbers to grow, but it’s encouraging to see increased diversity among small business owners in the United States.
3. Small businesses make up a lot of the economy

As a small business owner, you can be proud that you and your fellow entrepreneurs make up most of the economy. There are so many statistics demonstrating the importance of small businesses in the United States.

In the United States, small businesses comprise:
99.9% of all the country’s firms.
99.7% of all firms with paid employees.
97.7% of all exporting firms.
48% of private sector employees.
41.2% of private sector payroll.
33.6% of known export value.

Small business is a big deal in the United States’s economy. Remember these statistics any time you’re feeling down on your business.
4. Small businesses account for much of the US’s job growth.

If you own a business and manage employees, then you’re in part responsible for these amazing job creation statistics:
Small businesses employed 56.8 million people, or the equivalent of 48% of the private workplace in 2013.
In the first three fiscal quarters of 2014, small businesses added 1.4 million new jobs—39% of which were from very small businesses (with fewer than 50 employees).
Small business accounts for 63% of net new jobs in the United States.

5. More small businesses are opening than closing.

Finally, a few small business statistics shows a bright spot in the small business market: For the first time since the recession, small businesses are opening at a faster rate than they’re closing.

That’s spells even more good news for job creation in the US, too. Recent data shows that, of 16,000 small firms polled, one-third of small businesses increased their workforce in 2016, and a full 60% of all firms expected an increase in revenue that year.

→TL;DR: Small businesses make up the vast majority of the US’s firms. Overall, more and more small businesses are opening their doors. In particular, the rates of women- and minority-owned small businesses have recently increased.

The Big Picture on Small Business Survival Rates

When you take a step back from these small business statistics and look at the big picture, the main takeaway is this: Running a small business is hard work—and the percentage of small businesses that fail just demonstrates that. There are many reasons why small businesses fail, but in general, keep an eye on your capital sources and cash flow—those tend to be the tipping point for business failure.

But keep your head up, small business owner. Optimism for small businesses owners is growing, and the strength of small businesses in the US economy is validated with amazing statistics year after year.

Tuesday, January 15, 2019

The new Texas Governor’s Small Business 2019 Handbook is now online!

The Small Business Handbook provides in-depth information on starting a business in Texas including information on business formation, employee requirements, taxes and business financing. Also included, is information on programs and resources available to entrepreneurs and small business owners to help them start, grow and scale their business

Thursday, January 10, 2019

2 Years After Leaving My Corporate Job, These 11 Truths Have Held Up


Written by: By Scott Mautz Keynote speaker and author, 'Find the Fire' and 'Make It Matter'@scott_mautz

Many dream of leaving corporate behind. But what's it like when the grind kicks in?

When I first left my corporate job to become an entrepreneur (speaking/writing/teaching), I knew the "honeymoon period" would be bliss. But would I be left with blisters?

The further we distance ourselves from a sandstorm, the clearer our vision. Thus, with more informed introspection, I share a two-year progress report of life post-corporate. I'm happy to share that my eyes haven't deceived me--it's an oasis I've found. Here are 11 reasons why.

1. My values are my org chart now.

I used to ponder my sector's organization chart and wonder how high I'd elevate. I'd compare myself to others in other roles. Now I compare myself only to who I was yesterday and whether or not I'm a better version of myself. Whether or not I'm filling the position that each of my non-negotiable values requires me to fill. My values are now my Board of Directors.

2. Working on what matters, matters.

When I'm creating, writing, speaking, influencing, I feel alive. I matter. The corporate chain of command has been replaced by a thread of command, a thread running through my life that commands happiness--in the form of meaningful work.

3. We're built for flexible days, not 9-5 ones.

When leaving corporate you immediately notice the purest of joys--flexibility. That hasn't changed. It's hard to explain how life-changing flexibility is until you have it. Freedom of choice. Flow to the work and what enables you to flow when you work. The Industrial Revolution did us wrong with its 9-5 handcuffs.

With flexibility, I'm also experiencing far more of the spaces-in-between with my family. Sometimes it's picking up my daughter from school. Other times it's helping to start dinner. Every time it adds up. It's the quiet spaces between the loud ones that echo.

4. Instead of wondering where the day went, I'm adding more of them to my life.

No more days that got away from me. I'm adding time now by being twice as productive. I'm adding time to my life (literally) by prioritizing more exercise, less stress, and a better diet.

5. Success still matters. Significance matters more.

One thing that hasn't changed since I left corporate is that I want to be successful. So sue me. And it turns out I really can do this entrepreneur thing--it's a massive world with plenty for those who hustle.

What has changed is that success isn't enough. Living a life of significance is the new corner office. Making a real imprint on something bigger than me counts most.

6. My ceiling is based on seeing possibilities, not promotions.

I no longer wait to see how I'm stacking up to others to see if I'll rise. I'm limited only by limited thinking, which is drowned out by sky's-the-limit thinking. What my boss thinks of me no longer defines me. Living up to others standards has been permanently replaced by living up to my own.

7. Learning and growth are no longer distant, they're constant.

In just two years I've learned so much about speaking, writing, and platform building. Necessity is the mother of motivation, after all. I've re-embraced the concept of challenge. I've remembered that "unstuck starts" with "u".

8. I control my meetings, they no longer control me.

Once a week I'll hold a few business-critical meetings. You remember, the kind with an actual point to them? It's hard to explain what a profoundly dampening effect meetings have on your life until you've warmed yourself by the fire of freedom.

9. I have fewer, but deeper relationships. Isn't that where we're all headed anyway?

Sure, I miss my co-workers (most of them). Some fade. Some find me. None are forgotten. All are appreciated. Fewer have burrowed in. I'm good with that.

10. Next year's revenue is always unknown. And it's thrilling.

Counting only on yourself for "survival" is satisfying at the most primal level. It's all we had originally as a species. As an entrepreneur, you're hunter, gatherer, and more. It's a life of variety. Between variety or a sameness to work, I'll take the former. I'm not bashing all corporate jobs, just what mine had become. I'll take the gig gconomy over the gag economy.

11. Everything has led up to what I'm doing now.

I harbor no ill-will toward my corporate days. It gave me everything I have today. There were times though when I didn't see the point to all the hours I was working.

I see it now though. It was all in preparation for what I'm supposed to be doing. I see now that all roads pointed to the one I'm on today. Sometimes, life waits to turn on the GPS.

Two years in and all's well. If you're considering this path, I hope this check-in helps you check out the potential.

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