Quick Answer
Based on businesses that opened in 2002, 20.8% of businesses fail within the first year, according to the Bureau of Labor Statistics. 40% of businesses fail within the first three years, 49.9% within five years, 65.8% within 10 years, 73.3% within 15 years, and nearly 80% within 20 years.
If you're getting ready to start your open business or you're in your first year, you're probably equal parts excited and nervous. One of the biggest sources of anxiety for new business owners is whether or not your business will survive, especially if you don't know the truth about what percentage of businesses fail.
Fortunately, the stat you've probably heard — that 90% of businesses fail — only applies to disruptive startups. The truth is much less scary, especially since understanding business failure rates can help you make smart business decisions, such as taking out a small business loan or whether to risk expanding your business.
Small Business Failure Rates
Business failure is any closure that occurs because the business fails to produce profits, usually with at least one investor or owner experiencing financial loss. Below, we've compiled some small business failure statistics that can put your mind at ease as you start your new business venture. We looked at businesses that opened in 2002 to give us 20 years of trend data for the most accurate look at business failure rates.
![What Percentage of Businesses Fail? [2024] (1)](https://i0.wp.com/clarifycapital.com/assets/study/what-percentage-of-businesses-fail/business-failure-rates-by-year-5466c83d2b398b70b14bf4b6d123575084fdf7844b4766febb6678e084785e00.png "What Percentage of Businesses Fail? [2024] (1)")
- Business owners established 5,044,696 new businesses in 2022.
- Of the private sector businesses opened in 2021, 20.8% failed within a year.
- 40% of businesses established in 2002 failed during the first three years of business.
- 49.9% of businesses established in 2002 failed within five years.
- 65.8% of businesses established in 2002 failed within 10 years.
- By the end of year 15, more than 73% of businesses established in 2002 failed.
- Nearly 80% of businesses established in 2002 failed before they celebrated their 20th anniversary.
Understanding these statistics can help you plan and take off some of the pressure. Your first year doesn't have to be perfect — and it probably won't — but you do need to do better than the 20.8% of your competition that will fail in year one if you want to stick around for another year. Implementing several strategies early in your planning can help you accomplish that.
Small Business Failure Rates by Industry
Some businesses are more likely to survive than others, which is something to consider when starting your business. We break it down by industry for you below.
![What Percentage of Businesses Fail? [2024] (2)](https://i0.wp.com/clarifycapital.com/assets/study/what-percentage-of-businesses-fail/best-and-worst-industries-for-small-businesses-based-on-failure-rate-8ba13a552ada9c6c82bef084a82cecf98eec16aa7d4deadb6f6ea7709d53d518.png "What Percentage of Businesses Fail? [2024] (2)")
The Agriculture, Forestry, Fishing and Hunting industries have one of the best survival rates.
Businesses established in the Agriculture, Forestry, Fishing and Hunting industries are among the most likely businesses to make it to their 20th anniversary — of the businesses established in 2002, 31.4% were still in business in 2022. They are also the most likely to survive the first year, with a 15.6% 1-year failure rate, well below the 1-year average of 20.8%.
Businesses in this industry include:
- Farms and ranches
- Orchards
- Greenhouses
- Hatcheries
- Nurseries
Other industries with low 1-year failure rates are:
- Real estate and rental and leasing (16.8%)
- Retail trade (17%)
- Utilities (17.1%)
Information-based industries have the worst survival rates.
Businesses established in the information industry have a 1-year failure rate of 27.6%, almost seven percentage points higher than the average of all private sector businesses. They also have the highest failure rate at every benchmark we looked at:
- 1-year failure rate: 27.6%
- 3-year failure rate: 49.7%
- 5-year failure rate: 60.9%
- 10-year failure rate: 75.3%
- 15-year failure rate: 82.7%
- 20-year failure rate: 86.8%
The information industry is a subcategory of the service industry that includes businesses that produce and distribute information and cultural products. Some businesses in this industry include:
- Publishing
- Broadcasting
- Film
- Telecommunications
- Data processing
- Data communications
Other industries with high 1-year failure rates are:
- Construction (25.4%)
- Administrative and Waste Services (24.3%)
- Transportation and Warehousing (24%)
| Business Failure Rates by Industry | ||||||
|---|---|---|---|---|---|---|
| 1-Year Failure Rate | 3-Year Failure Rate | 5-Year Failure Rate | 10-Year Failure Rate | 15-Year Failure Rate | 20-Year Failure Rate | |
| Agriculture, forestry, fising and hunting | 15.6% | 29.4% | 36.8% | 54.4% | 62.3% | 68.6% |
| Mining, quarrying and oil and gas extraction | 22.7% | 39.4% | 48.3% | 61.9% | 73.5% | 80.8% |
| Utilities | 17.1% | 34.9% | 49% | 58.4% | 64.6% | 69.9% |
| Construction | 25.4% | 42.6% | 52.5% | 74% | 79% | 83.2% |
| Manufacturing | 20.6% | 39.5% | 48.9% | 64.6% | 70.9% | 75.5% |
| Wholesale trade | 22% | 42.1% | 52.8% | 69.4% | 77.6% | 83.1% |
| Retail trade | 17% | 34.3% | 44.8% | 60.1% | 66.7% | 73% |
| Transportation and warehousing | 24% | 43.6% | 54.3% | 70.9% | 77.6% | 82.1% |
| Information | 27.6% | 49.7% | 60.9% | 75.3% | 82.7% | 86.8% |
| Finance and insurance | 19.6% | 37.1% | 46.3% | 64.5% | 71.7% | 77.3% |
| Real estate and rental and leasing | 16.8% | 33% | 44.2% | 64% | 71.8% | 77% |
| Professional, scientific, and technical services | 21.6% | 43.1% | 52.6% | 68.5% | 75.7% | 80.8% |
| Management of companies and enterprises | 17.4% | 27.5% | 34.6% | 43.8% | 51.4% | 62% |
| Administrative and waste services | 24.3% | 44.1% | 53.5% | 69.9% | 77% | 81.8% |
| Educational services | 19% | 36.3% | 46.2% | 60.8% | 69.1% | 75.5% |
| Health care and social assistance | 18.9% | 35.5% | 45.2% | 59% | 69.3% | 76.6% |
| Arts, entertainment and recreation | 21.9% | 40.9% | 51.1% | 67.5% | 76.6% | 82.3% |
| Accommodation and food services | 19.2% | 36.1% | 45.9% | 59.5% | 67.3% | 74.2% |
| Other services (except public administration) | 19.7% | 37% | 47.5% | 62.8% | 70.8% | 77.7% |
Source: Bureau of Labor Statistics
Small Business Failure Rates by State
Not only do you need to consider your industry's failure rate, but where you start your business matters. Some states have better survival rates than others.
![What Percentage of Businesses Fail? [2024] (3)](https://i0.wp.com/clarifycapital.com/assets/study/what-percentage-of-businesses-fail/best-and-worst-states-to-start-a-business-based-on-failure-rates-960dd0cbf4d731cdc3a9255d721d5da3a5c47a95ac4c2ca0a461a09e75da4bb4.png "What Percentage of Businesses Fail? [2024] (3)")
Minnesota is the best state to start a business based on 1-year failure rates.
Minnesota has the lowest 1-year failure rate at 16.2%, four percentage points lower than the nationwide average of 20.8%. The state has recently passed various infrastructure bills to make owning a business easier. There are also fewer business taxes, so you can keep more of what your business earns each year.
Other states with low 1-year failure rates are:
- North Dakota (17%)
- Wisconsin (17.1%)
- South Carolina (18%)
South Dakota has the lowest 20-year failure rate.
South Dakota has the lowest 20-year failure rate at 70.5%. The state has lower business taxes and overall low costs, so businesses can keep enough of the money they make each year. This allows businesses to reinvest their profits to continue to grow and innovate.
Other states with low 20-year failure rates include:
- North Dakota (70.7%)
- Wisconsin (71.1%)
- Pennsylvania (72.4%)
| Business Failure Rates by State | ||||||
|---|---|---|---|---|---|---|
| 1-Year Failure Rate | 3-Year Failure Rate | 5-Year Failure Rate | 10-Year Failure Rate | 15-Year Failure Rate | 20-Year Failure Rate | |
| Alabama | 19.9% | 36.8% | 46.9% | 62.2% | 70.5% | 77.5% |
| Alaska | 20.1% | 37.6% | 48.2% | 62.7% | 69% | 76.3% |
| Arizona | 23% | 41.3% | 51.1% | 69% | 75.8% | 90.9% |
| Arkansas | 20.4% | 38.9% | 48.3% | 64% | 71.7% | 76.8% |
| California | 21.2% | 40% | 51.1% | 67.6% | 75.8% | 81.8% |
| Colorado | 23.3% | 42.1% | 52.4% | 68.7% | 75.2% | 80.6% |
| Connecticut | 21.6% | 39.1% | 49% | 65.8% | 73.1% | 79.7% |
| Delaware | 21.6% | 34.6% | 48.2% | 68% | 74.4% | 79.9% |
| District of Columbia | 25.8% | 44.6% | 55.4% | 70.1% | 77.4% | 78.3% |
| Florida | 23.8% | 44.3% | 53% | 71.1% | 71.7% | 82.3% |
| Georgia | 22.5% | 40.2% | 49.3% | 65.4% | 72.8% | 78.4% |
| Hawaii | 18.4% | 34.7% | 43.2% | 57.7% | 66.7% | 75.1% |
| Idaho | 20.3% | 35.8% | 45.5% | 65% | 72.9% | 77.5% |
| Illinois | 20% | 38.7% | 48.1% | 64.7% | 72.8% | 79.3% |
| Indiana | 20.1% | 38.9% | 49.1% | 64.2% | 71% | 77.1% |
| Iowa | 18.6% | 34.8% | 44.9% | 59.6% | 68.6% | 74.5% |
| Kansas | 25% | 43% | 53.6% | 67.7% | 75.8% | 80.2% |
| Kentucky | 23.2% | 39.8% | 49.2% | 64.8% | 71.9% | 77.3% |
| Louisiana | 20.8% | 37.9% | 48.4% | 62.5% | 69.6% | 77.3% |
| Maine | 20.3% | 37.4% | 47.3% | 65.5% | 71.7% | 78.6% |
| Maryland | 22.7% | 41% | 50.7% | 67.1% | 74.8% | 80.6% |
| Massachusetts | 21.1% | 37.8% | 47.1% | 62.1% | 69.8% | 75.7% |
| Michigan | 22.1% | 39.3% | 50.9% | 66.8% | 73.2% | 78% |
| Minnesota | 16.2% | 34.9% | 43.5% | 63.3% | 68.5% | 75.4% |
| Mississippi | 22.3% | 40.2% | 51.4% | 67.2% | 75.6% | 81.3% |
| Missouri | 19.9% | 38.1% | 47.1% | 62.2% | 69.2% | 77% |
| Montana | 21.2% | 37.1% | 44% | 57.9% | 65.4% | 72.9% |
| Nebraska | 20.1% | 37.9% | 48% | 59.9% | 68.1% | 74.6% |
| Nevada | 24.2% | 39.2% | 48.4% | 66% | 71.6% | 76.6% |
| New Hampshire | 23.1% | 41.9% | 52.9% | 67.6% | 73.9% | 79.5% |
| New Jersey | 22.1% | 41.3% | 52.3% | 68.9% | 77.3% | 82.1% |
| New Mexico | 24.3% | 44.4% | 54.3% | 70% | 75.8% | 81.4% |
| New York | 20.5% | 38% | 48.5% | 64.8% | 73.2% | 79.2% |
| North Carolina | 21.2% | 37.5% | 46.5% | 63.2% | 70.9% | 76.4% |
| North Dakota | 17% | 30.3% | 41.3% | 55.1% | 63.7% | 70.7% |
| Ohio | 2O.2% | 39.6% | 49.9% | 64.4% | 71.6% | 77% |
| Oklahoma | 22.8% | 39.2% | 48% | 61.7% | 70.9% | 77.4% |
| Oregon | 21.3% | 37.7% | 46.8% | 64.1% | 71.6% | 77.3% |
| Pennsylvania | 20.1% | 35.6% | 43.2% | 57.3% | 66.2% | 72.4% |
| Rhode Island | 23.8% | 40.5% | 50.8% | 67.4% | 75.2% | 79.8% |
| South Caorlina | 18% | 38.5% | 48.2% | 66.6% | 73.2% | 79.3% |
| South Dakota | 18.8% | 33.7% | 42.6% | 56.1% | 64.8% | 70.5% |
| Tennessee | 21.1% | 41% | 51.1% | 65.9% | 72.6% | 76.5% |
| Texas | 22.2% | 41.3% | 50.6% | 64.2% | 70.3% | 75.4% |
| Utah | 24.4% | 41.5% | 49.9% | 66.9% | 73% | 78% |
| Vermont | 20.9% | 37.5% | 45.8% | 64.6% | 71.6% | 77.5% |
| Virginia | 21.5% | 39.6% | 48.9% | 65.6% | 73.7% | 80% |
| Washington | 27.6% | 51% | 60.5% | 72.8% | 79.3% | 83.5% |
| West Virginia | 22.8% | 38.7% | 50.5% | 66.4% | 74.2% | 81.3% |
| Wisconsin | 17.1% | 32.3% | 42.5% | 59.1% | 65.6% | 71.1% |
| Wyoming | 21.5% | 37% | 48.7% | 62.7% | 71.7% | 77.2% |
Source: Bureau of Labor Statistics
Washington is the worst state to start a business based on failure rates.
The state of Washington has the highest 1-year failure rate at 27.6% and the highest 20-year failure rate. Of the businesses established in Washington in 2002, 83.5% failed by 2022.
This may be partly due to state laws and regulations, including an increasing minimum wage and a business and occupation tax on gross receipts. These policies can make it difficult for businesses to make enough money each year to survive.
Other states with high 1-year failure rates include:
- District of Columbia (26.8%)
- Kansas (25%)
- Utah (24.4%)
Other states with high 20-year failure rates include:
- Florida (82.3%)
- New Jersey (82.1%)
- California (81.8%)
Why Do Small Businesses Fail?
Small business ownership isn't easy, and you will make mistakes along the way. The key is to avoid the big ones that can cause your business to fail.
Here are a few of the biggest reasons small businesses fail.
![What Percentage of Businesses Fail? [2024] (4)](https://i0.wp.com/clarifycapital.com/assets/study/what-percentage-of-businesses-fail/the-biggest-reason-businesses-fail-7b74e4e5c77bc34966fdeb8e3b7eab5c0675f0a98c323b4644a4887ff103a127.png "What Percentage of Businesses Fail? [2024] (4)")
1. Lack of capital
A healthy cash flow is essential for any business — just ask the nearly 4 in 10 businesses forced to close their doors when they run out of capital.
A new business needs money to get off the ground. A new business needs cash to cover startup costs like filing for a business license and purchasing equipment your business will need to run day-to-day, whether that's tools your employees will use on the job, such as a bulldozer or a computer for your receptionist. If you have employees helping you get off the ground, you'll also need to pay them before you start making a profit.
Most entrepreneurs (63.3%) use personal funds to start their business, while only 22% seek financing from outside entities like banks, investors, or other sources. Whatever path you choose for financing, securing sufficient funding before you open your doors improves your chances of surviving the first year of business and beyond.
No matter where you are in your business, Clarify Capital can help you get the funding you need to keep your doors open and grow your business.
2. Poor Marketing
You can be the best in the business, but if no one knows you exist, your business won't last beyond the first year. Many new business owners underestimate how much marketing they'll need to do and how much it will cost, or they spend their marketing budget ineffectively.
Your marketing efforts must match your potential customers and will vary based on your industry.
3. Poor Planning
Businesses that survive have a plan and stick to it. Whether it's your business plan, marketing plan, or budget, put the work into researching it before implementing it so it's as detailed and accurate as possible. Then put it into practice and only deviate if you have a fantastic reason — changing priorities on the fly or based on limited data almost certainly leads to failure.
4. Failing To Differentiate
To survive, you need to ensure your customers understand why you are better than the competition. Maybe your product has a feature your competitors' products don't. Maybe your customer service is better, or your product is cheaper. Find what makes your company unique early, ensure people know it and watch your business grow.
5. Factors Outside Your Control
Sometimes you can do everything right, and your business can still fail. Business-friendly tax credits or programs may expire and eat into your profits. A global pandemic can force the entire world to shut down and wreak havoc on the global supply chain. Many people who started a business in early 2020 did everything right, but they couldn't survive the COVID-19 shutdown.
Having enough savings can help address these unforeseen situations, but sometimes timing is everything.
4 Steps to Surviving Your First Year (and Beyond)
Fortunately, taking a few key steps before starting your business can help you avoid being a business failure statistic.
1. Craft an Effective Business Plan
Before you do anything else, assemble a robust business plan.
A business plan includes the following information:
- Description and analysis of your ideal customer
- Description and analysis of your competitors
- An overview of how your business will work
- An analysis of the current market
- Your business goals and objectives
- Your expected budget with profit margins and financial projections
- Anything else you feel is essential to know
If you plan on seeking outside funding at any point, investors will want to see a business plan. The document will also help guide your decision-making in the early stages of your business and beyond, helping you avoid the common mistakes that lead to business failure.
2. Manage Your Finances Wisely
At some point during the life of your business, you'll probably need to take out a small business loan, whether it's to purchase new equipment or expand your business. To qualify, you'll need to show you are a good investment, and a strong credit history does just that.
When applying for business financing through a bank or applying for credit with a vendor, they'll check your business credit score or, if you don't have a business credit score yet, your personal credit score. For this reason, work to raise your personal credit score while building your business credit score. Minimize your debt and pay bills on time (autopay is a great way to do this).
3. Focus on Marketing and Customer Acquisition
Develop a robust marketing plan and execute it with a healthy marketing budget so you can acquire customers. This is important at any stage of business, but especially when you start.
Here are a few strategies to try:
Forge a social media presence where your potential customers already hang out.
Ask satisfied customers to write reviews online and add them to your website as social proof to attract new customers.
Place ads with local media or guests on a local radio show or podcast.
Use pay-per-click (PPC) advertising and redirect ads to target new customers while keeping warm leads.
4. Adapt
No matter how well you plan, your business will experience unexpected twists and turns. You may discover clients using your product in a use case you hadn't considered, opening your business up to a new ideal customer. Online sales may exceed what you originally planned. Or, an unexpected natural disaster or other phenomenon, like a pandemic, may limit your operating hours.
Whatever happens, you'll need to adapt if you want your business to survive.
The Keys to Survival: Innovation and Differentiation
To be one of the 21% of businesses that get to celebrate its 20th anniversary, you need to innovate and differentiate yourself from your competitors. History tells us that the companies that don't fail.
![What Percentage of Businesses Fail? [2024] (5)](https://i0.wp.com/clarifycapital.com/assets/study/what-percentage-of-businesses-fail/businesses-that-failed-to-survive-1d4831cfdfd57aaad6665b693056ff8e88f9529494c782d0e3d32749417e77be.png "What Percentage of Businesses Fail? [2024] (5)")
Innovation is implementing creative and useful ideas to propel your business forward. Sometimes, innovation means creating a new product that disrupts the market, but it can also mean improving what's already out there. When implemented correctly, innovation helps you weather and adapt to forces beyond your control, such as the rise of online stores or the COVID shutdown. It can also help you stand out from your competition and foster growth.
Innovation needs to occur carefully — creating a new or better product doesn't matter if your customers decide they don't want it, which JCPenney discovered when they eliminated sales coupons and clearance sales. Company leaders thought sales are deceptive when everything is always one sale, and it would be easier if customers didn't need coupons. Unfortunately, customers felt the company eliminated deals and started shopping where there were coupons and clearance sales. Ultimately, the company had to file for bankruptcy in 2020.
Innovation also helps you differentiate yourself from your competition, a key factor in helping your business celebrate its 20th anniversary. Differentiation allows you to showcase how you are different from your competition, increasing brand awareness and giving you a competitive advantage. Differentiation can occur in your marketing, pricing or overall product design.
Survive the First Year With a Clarify Capital Small Business Loan
Whether you're just starting your business or approaching the quarter-century mark or beyond, access to enough capital with small business loans can help your business thrive. Learn more about how Clarify Capital can help your business avoid failure, and apply now to see your funding opportunities.
Methodology
To discover what percentage of businesses fail, Clarify Capital analyzed data from the Bureau of Labor Statistics regarding business survival rates. We looked at survival rates to determine the percentage of businesses that failed each year and compared those rates over 20 years across industries and states.
![What Percentage of Businesses Fail? [2024] (6)](https://i0.wp.com/clarifycapital.com/assets/study/what-percentage-of-businesses-fail/what-percentage-of-businesses-fail-infographic-ba2c497d0b8ff22b376101933a2cbbae3fe8115be6a99c4651ed4b9db93b4171.png "What Percentage of Businesses Fail? [2024] (6)")
![What Percentage of Businesses Fail? [2024] (7)](https://i0.wp.com/clarifycapital.com/assets/authors/emma-parker-fb6877efc99e6e9f149bfe5d97467d96dabe9f23e3942659bee31702ace2c431.jpg "What Percentage of Businesses Fail? [2024] (7)")
Emma Parker
Senior Funding Manager
Emma holds a B.S. in finance from NYU and has been working in the business financing industry for over a decade. She is passionate about helping small business owners grow by finding the right funding option that makes sense for them. More about the Clarify team →
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