According to the U.S. Bureau of Labor Statistics, around 20% of new businesses close within the first year. After five years, nearly half of the small businesses have failed, and after ten years, 65.5% of businesses have failed.
But roughly how many businesses close each year?
There are approximately 595,000 businesses that fail or close each year. However, on the other hand, 627,000 businesses also open up each year, so while 595,000 may seem like a harsh number, the number of businesses that open up each year offsets that number by approximately 32,000.
It is important to note that there is some variance from year to year based on economic conditions. The failure rate gives an idea of how and when businesses tend to fail and can help entrepreneurs make informed decisions about starting a business.
What Are The Top Reasons For Business Failure
Small and large businesses alike can fail. There are several reasons why businesses fail, including inadequate management, lack of funding or working capital, poor marketing campaigns, ineffective leadership, lack of long-lasting value, failure to understand the target market, starting a business for the wrong reasons, and poor management.
One of the most common reasons for business failure is a lack of funding or working capital. Most business owners are aware of how much money is required to keep operations functioning on a daily basis.
However, they may not have enough funds to pay fixed and varied overhead expenses such as rent or salaries reported by Investopedia.
Inadequate management is another cause of business failure. Poor management skills can lead to poor decision-making that can negatively impact the company’s growth and profitability.