Small businesses play a critical role in driving economic growth and creating jobs. According to the Small Business Administration (SBA), small businesses accounted for 44% of economic activity in the United States in 2021. However, not all small businesses succeed, and many fail within the first few years of operation. In this blog, we will take a closer look at small business statistics for 2022 and explore the small business failure/success rate.
Small Business Failure Rate
Starting a small business is not easy, and many entrepreneurs face significant challenges. According to the Bureau of Labor Statistics, approximately 20% of small businesses fail within their first year. The failure rate increases to 30% by the end of the second year, 50% by the fifth year, and 70% by the tenth year. The most common reasons for small business failure include cash flow problems, lack of demand for the product or service, and insufficient capital.
Small Business Success Rate
Despite the high failure rate, many small businesses thrive and grow over time. According to the SBA, approximately 80% of small businesses survive their first year. The survival rate increases to 50% after five years and 30% after ten years. Successful small businesses have several key characteristics, including a solid business plan, a clear understanding of the market, a strong team, and access to capital.
Small Business Trends in 2023
The COVID-19 pandemic has had a significant impact on small businesses, with many struggling to survive. However, there are also opportunities for small businesses to thrive in the post-pandemic world. Here are some of the small business trends for 2022:
1. Digital Transformation
Small businesses are increasingly embracing technology to streamline their operations, reach more customers, and compete with larger companies. Making a digital transformation is the best way to stay afloat.
2. eCommerce
Online sales have skyrocketed during the pandemic, and many small businesses have pivoted to eCommerce to stay afloat. In fact, some businesses even started to thrive once going online due to the beauty of the internet’s 24/7 marketplace.
3. Remote Work
The pandemic accelerated the already growing trend towards remote work, and many small businesses embracing flexible work arrangements attract and retain top talent more easily.
4. Sustainability
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Consumers are increasingly concerned about environmental issues, and small businesses that prioritize sustainability are likely to be more successful in the coming years.
5. Alternative Sources of Capital
Thinking of diverse ways to secure and compound funding will be key to keeping more businesses solvent as industries grapple with the increased conventional loan rate increases and other economy aspects.
6. Rising Interest Rates and the Economy
While inflation has started to fall, rising interest rates are expected to continue throughout 2023, which could cool the economy and even push it into a recession. Rising rates make borrowing more expensive for businesses and their customers, so keeping an eye on those rates could make your break your business.
7. Generative Artificial Intelligence
Investments in generative AI are reaching billions from venture capitalists and major corporations alike with the results even reaching everyday users on a regular basis. The full extent of its implications is not yet known, however, small businesses should anticipate encountering an increasing array of generative AI tools. These tools aim to transform their operations and processes.
8. The Importance of Automation
As AI advances, automation will work in tandem with existing tools used by businesses. This will help to simplify and optimize various processes and functions. The logistics sector is also expected to shift towards automation, including warehouses and the use of robotic delivery systems.
9. Adopting New Tech
Small businesses that prioritize agility and adaptability are better equipped to adapt to emerging technologies, giving them a competitive edge. This can position them as leaders in driving the mass adoption of technologies such as AR, VR, and machine learning in 2023.
What Does This Mean For Your Business?
How businesses can evolve has expanded exponentially with no signs of slowing. In the midst of ongoing technological advancements and an uncertain geopolitical climate, change and unpredictability are inevitable constants. However, you can always prepare for changes like these and position your business for success, even in the toughest times. By closely monitoring trends like those we mentioned above and proactively considering how they may impact your business, you can gain a competitive advantage.
What’s Your Next Step?
If you want to expedite your business growth, talk to our experts! We’ve got everything you need to succeed all in one place. Contact us today for your free consultation!
FAQs
Approximately 65.3% of small businesses operating in the United States in 2022 are thriving and making money.
What percentage of small businesses fail 2022? ›
Percentage of businesses that fail in the U.S.
According to the latest data looking at the March 2023 status of businesses that opened in March 2022, 23.2% of private sector businesses in the U.S. fail within the first year.
What is the true failure rate of small businesses? ›
According to the U.S. Bureau of Labor Statistics (BLS), approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.
What is the success rate of small businesses? ›
Small business success statistics
Unfortunately, a whopping 50 percent of small businesses fail within five years of opening their doors, according to the Bureau of Labor Statistics. A good 18 percent fail within the first year.
What is the BLS failure rate for small businesses? ›
Data from the Bureau of Labor Statistics looked at the status of businesses in March 2023. In that time, 23.2% of businesses that opened on or after March 2022 failed within a year.
Why do 90% of small businesses fail? ›
Key Takeaways. According to business owners, reasons for failure include money running out, being in the wrong market, a lack of research, bad partnerships, ineffective marketing, and not being an expert in the industry. Ways to avoid failing include setting goals, accurate research, loving the work, and not quitting.
What percentage of small businesses fail after 1 year in business? ›
The failure rates of businesses show that around 20% fail in their first year and about half of businesses are still standing after 5 years. Certain startups, however, tend to have a 90% failure rate and somehow, this statistic became the norm.
What is the #1 reason small businesses fail? ›
“If you lack the cash or assets to start on your own, like most businesses, you will need to borrow,” it says. Poor cash flow. According to SCORE, 82% of all small businesses fail due to cash flow problems.
What is the survival rate of small businesses according to the SBA? ›
Small Business Success Rate
According to the SBA, approximately 80% of small businesses survive their first year. The survival rate increases to 50% after five years and 30% after ten years.
What percentage of small businesses are actually profitable? ›
According to the latest stats, 65% of small businesses are profitable. That's a big jump from 2018, when 40% reported being profitable.
Most businesses don't make any profit in their first year of business, according to Forbes. In fact, most new businesses need 18 to 24 months to reach profitability.
How many failed businesses before success? ›
20% of new businesses fail within the first two years. 45% of new business startups don't survive the fifth year. 65% of new startups fail during the first ten years. 75% of American startups go out of business during the first 15 years.
What is a reasonable failure rate? ›
The ideal failure rate is zero. However, while nobody likes pesky bugs, they're inevitable. According to DORA, elite and high-performing teams typically have rates that fall between 0% and 15%. That's the benchmark, the standard that teams need to maintain.
Are small businesses are prone to failure? ›
Specifically, around 10% of small businesses fail in their first year, around 31% in their second year, and by the end of the fifth year, almost 50% have ceased operations. This critical period highlights the importance of solid planning, financial management and adaptability in the early stages of a business.
What percentage of small businesses fail due to cash flow? ›
According to SCORE, 82% of small businesses fail due to cash flow problems. Cash flow is a blanket term that has many underlying roots. Cash flow is simply a metric that indicates how money is coming in and being spent at your business.
Is it true that 90% of startups fail? ›
9 out of 10 startups fail
The failure rate of startups is high at more than 90%. Over nine in 10 startups fail overall, and about 20% of those fail in the first year of operations.
Why do 80% of businesses fail? ›
To put things into perspective, more than 80% of business failures are due to a lack of cash, 20% of small businesses fail within a year, and half fail within five years. But it doesn't have to be that way. In fact, many businesses can avoid cash flow problems with proper cash flow forecasting.
What business has the highest failure rate? ›
Here are five small business types with a high failure rate.
- Restaurants. Independent restaurants have a failure rate of over 60% at the 10-year mark. ...
- Retail stores. Another business with intense competition is a retail store. ...
- Direct sales. ...
- Construction. ...
- Insurance sales.
What Are the Odds of Succeeding? According to the U.S. Small Business Administration (SBA), roughly 70% of all new businesses survive for the first two years. Beyond that, the chances of success fall to about 50% at five years.
How long does the average small business last? ›
Building a business isn't for the faint of heart when you consider the average lifespan of a small business is only 8-½ years. It takes a real never-say-die attitude to take the entrepreneurial leap.
Startup Success Rate
As mentioned earlier, 9 in 10 startups make it through their first year, and 50% survive the first five years. In the long run, though, the success rate of tech startups and non-tech companies alike falls between the 10%-20% range.
Why only 1 percent succeed? ›
First of all, they are lifelong students. People among one percent successful are lifelong learners. While the rest of the people confine themselves to school, college and university education and think that we have gathered all the world by getting a simple degree or have acquired all knowledge.
What percentage of the economy is small business in 2022? ›
Small businesses employ nearly half of the American workforce and represent 43.5% of America's GDP.
What is the average net profit of a small business? ›
As reported by the Corporate Finance Institute, the average net profit for small businesses is about 10 percent. Here are some examples reported by New York University—note the wide range of actual profit margins reported in the study: Banks: 31.31% to 32.61% Financial Services: 8.87% to 32.33%
