Small Business Failure Statistics in 2024: A Closer Look

As a small business, it is important to be aware of the potential for failure. A recent study by the University of North Carolina found that more than 50% of small businesses fail within the first five years.

While there are many factors that can contribute to a business’s failure, understanding the most common reasons can help you avoid them.

Let’s dive into the common reasons why small businesses fail and how often they do, plus some tips to boost your chances of success.

Small Business Failure Statistics: Key Numbers

About 79 % of small businesses survive their first year, which means only 21% of small businesses fail in first years.
More than 50% of new businesses fail within five years.
70% of small businesses fail in their 10th year.
82% of businesses that failed cited cash flow problems as a factor in their failure
For 33% of small business owners, the greatest challenge is a lack of capital
60% of small businesses are not profitable.
37.9% of businesses fail within the first three years.

Source: (Office of Advocacy, Entrepreneur, Guidant Financial, SmallBizTrends)

Small Business Failure Rate By Year

Checking out how small businesses fare over ten years gives us a clear picture of their survival struggles. Here’s a breakdown showing the percentage of businesses that don’t make it each year:

Years in Business	Failure Rate
1 year	20.40%
2 year	31.10%
3 year	38.60%
4 year	44.70%
5 year	49.40%
6 year	53.30%
7 year	57.20%
8 year	60.10%
9 year	62.40%
10 year	65.30%

Reasons For Small business Failure

Small business failures are often attributed to a variety of common issues. Here are some of the main issues that lead to their downfall:

No Market Need: 42%
Ran Out of Cash: 29%
Not the Right Team: 23%
Get Outcompeted: 19%
Pricing/Cost Issues : 18%
Poor Product: 17%
Need/Lack Business Model: 17%
Poor Marketing: 14%
Ignore Customers: 14%
Product Mis-Timed: 13%
Lose Focus: 13%
Disharmony on Team/Investors: 13%
Pivot Gone Bad: 10%
Lack Passion: 9%
Bad Location: 9%
No Financing/Investor Interest: 8%
Legal Challenges: 8%
Don’t Use Network/Advisors: 8%
Burn Out : 8%
Failure to Pivot: 7%

Source: CBInsights

Founder’s Recommendations for Preventing Startup Failure

Boosting a startup’s success is all about focusing on the right strategies. Check out these key areas where startups often slip up and how you can avoid them:

More research prior to launch: 29.5%
Stronger business plan: 22.4%
More financial backing/investors: 13.5%
Better marketing: 13.5%
Better product: 5.1%
Successful pivot: 3.2%
Better team: 1.9%

Source: D2C

Small Business Challenge Statistics

Small business owners face a variety of challenges that impact their operations and growth. Here’s a look at the main issues small business owners are dealing with:

16% of U.S. small business owners identified hiring qualified/good staff and retaining them as their biggest challenge.
15% of small business owners reported attracting customers and targeting business opportunities as a major challenge.
Financial stability and cash flow were cited as a challenge by 9% of small business owners.
Taxes were considered a significant issue by 8% of small business owners.
7% of small business owners mentioned government (general) as their primary challenge.
Competition from larger corporations and the internet was a challenge for 6% of small business owners.
6% of small business owners also identified government regulations as a major concern.

Source: Gallup, Wells Fargo

How Many Small Businesses Fail Each Year

On average, about 595,000 businesses that fail or close each year. This is about 21% of all businesses that start up each year.

Since, there are estimated 637K new businesses open each year based on data from the last 3 years. And, according to the latest statistics, about 21% of new businesses fail in the first years.