Small Business Success Rates: The Numbers Reveal

In this article, we cover:

Entrepreneurship is vital to the American economy. The Bureau of Labor Statistics monitors labor market data to understand its health. For example, it tracks business success rates by industry. This publicly available information is critical to understanding and can give startups an edge. We break down business success rates for several industries, walk you through how to find and analyze data, and discuss ways to build a successful business so you’re not one of those businesses that ultimately fail. Will happen (spoilers, many do).

we Bureau of Labor Statistics (source of the following graphs in the article) has been tracking small business success rates by industry since the early 90s. This data reveals trends that tell us that too many businesses inevitably fail. This harsh reality should not deter entrepreneurs from starting a small business. However, this should be seen as motivation to start the business in the right way, which we will see later in this article.

To give you a general sense of small business success rates, let’s look at numbers for the following industries: healthcare, real estate, transportation and storage, professional, scientific and technical services, and housing and food services. If these industries aren’t relevant to you, in the next section of the article, we’ll share how to find small business success rates (and other data) for other industries that apply to your business.

The following data is all taken from the US Bureau of Labor Statistics and looks at the success rates for five 2015 occupational groups:

Health care

In 2015, there were 112,747 businesses in the Health Care and Social Assistance cohort (i.e., net new businesses established that year). This chart shows how many businesses from the original 2015 group remain in place year-over-year through 2022. By 2022, only 49.2% of the 112,747 health care and social assistance businesses established in 2015 will be in existence. Less than half remain after 7 years.

health care and social assistance

real estate

In 2015, there were 24,027 businesses in the Real Estate and Rental and Leasing cohort (i.e., net new businesses established that year). This chart shows how many of the original 2015 group’s businesses remain year-over-year through 2022. By 2022, 56.6% of the 24,027 real estate and rental and leasing businesses established in 2015 will be in existence. After 7 years more than half are left.

real estate and rental and leasing

transportation and storage

In 2015, there were 18,443 businesses in the transportation and warehousing cohort (i.e., net new businesses established that year). This chart shows how many of the original 2015 group’s businesses remain year-over-year through 2022. By 2022, only 46.8% of the 18,443 transportation and storage businesses established in 2015 will be in existence. Less than half remain after 7 years.

transportation and storage

professional, scientific and technical services

In 2015, there were 95,879 businesses in the professional, scientific and technical services (a consultancy as an example) cohort (i.e., net new businesses established that year). This chart shows how many occupations from the original cohort of 2015 remain the same year-over-year through 2022. By 2022, only 43.2% of the 95,879 professional, scientific and technical service businesses established in 2015 will still be in existence. Less than half remain after 7 years.

professional, scientific and technical services

Accommodation and Dining Services

In 2015, there were 47,077 businesses in the accommodation and food services group (i.e., net new businesses established that year). This chart shows how many businesses from the original 2015 group will remain year-over-year through 2022. By 2022, 51.40% of the 47,077 accommodation and food service businesses established in 2015 are in existence. After 7 years more than half are left.

Accommodation and Dining Services

Analysis of data

Keep in mind that the Bureau of Labor Statistics has success-rate data since 1994 and we reviewed a relatively small slice of 2015 data from 5 different occupational groups. With that said, the two industries where most businesses succeeded and are still in business after 7 years, real estate and food, are both essential. You have to sleep somewhere and you have to eat.

This is one type of analysis that can be done for entrepreneurs who want to start a new small business and are wondering what to do or where to start. In addition to business success rates, the Bureau of Labor Statistics also reports on establishment age, job gains and losses (as a percentage of employment), establishment age, number of private sector establishments by age, job gains and losses from private sector employment. Shares data. From the inception age, and more.

how to get more data

As mentioned above, we reviewed a relatively small piece of data from the Bureau of Labor Statistics. by reviewing Establishment age and survival BED data for the nation by major industry dataYou can review this type of data for additional industries prior to 1994. A more historical view may help you understand the success rates of businesses in certain industries.

Even industries that appear to produce successful businesses when you look at the data over a few years are challenged to build successful businesses that survive for the long haul. It can also be beneficial to understand the success rates after the first year and after five years. Let’s take a deeper dive into the data to take a look at the real estate and rental and leasing industry:

  • Only 21.7% of the 2000 real estate and rental and leasing cohort is in existence today.
  • Only 35.1% of the 2010 Real Estate and Rental & Leasing cohort is in existence today.
  • 2% of the 2017 Real Estate and Rental & Leasing cohort is still in existence today.
  • 7% of the 2021 Real Estate and Rental & Leasing Cohort is still in existence today.

Zooming in and out on metrics helps to understand the industry even more and should also aid in decision making. After five years, about 35% of businesses in this industry are no longer in existence. After only one year, about 16% of businesses no longer exist.

The years following the financial crisis, not surprisingly, saw the lowest cohort numbers in the real estate and rental and leasing industry since the data were recorded. In 2010, only 19,358 businesses were started in this industry, in contrast to 2006, just before the financial crisis, when the highest number of businesses were started with 34,990. Understanding the numbers can help entrepreneurs understand trends and why businesses fail.

Many factors go into business failure. Whether it’s a pandemic, changing consumer preferences, government regulations or a financial crisis, it’s important that small business owners do everything they can to ensure their survival by preparing.

Important factors for setting up a business that survives

While it is impossible to predict future events, there are several strategies to give your business a higher chance of success. Sometimes the difference between businesses that succeed and those that fail is the level of commitment and level of due diligence in the following areas:

  • business goalsEstablish your business goals beyond the idea of ​​”I want to start a business.” Why do you want to start a business? Whether it’s financial independence, being your own boss, or making lots of money, whatever your reason, it’s important that when you start your small business it’s as clearly defined as the data tells us. Yes, many businesses don’t survive over the long term so you need to have a strong sense of purpose to keep going.
  • business planBusiness plans are important because some lenders will require one as part of the loan approval process. Having a comprehensive business plan can be a fundamental asset to your business because it details the structure, operations and growth path of your business. It’s a way for small business owners to think about the key elements of running their business. Such as the market need you want to address and the new product or service you plan to bring to market to capitalize on the market need. Even if you don’t need the loan immediately, you can prepare a business plan so that you can move quickly when you do need it. For more information on all the components of a business plan, read our comprehensive article how to write a business plan for loan application,
  • marketing planThere are a lot of variables when figuring out your marketing plan. Essentially, what marketing channels will you be using to communicate with your customers and prospects? For example, there are multiple social media channels with different audiences and use cases. You can get success by doing your due diligence here. If you have a professional service, LinkedIn may be a good option. If you have a restaurant, Instagram can be a great option. There are many marketing strategies to consider including email newsletters, direct mail, blogging, and more.
  • business model: How does your business plan to make money? It’s part of your business plan, but important enough to make a call here as well. Will you charge a subscription or offer volume-based pricing? Consider all the different pricing options for your products and services. Also, what payment methods will you accept? For additional information, read our article titled How To Lower Your Credit Card Machine Fees small business,
  • cash flowCash flow: Cash flow is the money that comes and goes into a business and usually small business owners use cash flow to operate their business. Generating positive cash flow is the goal of every business owner. For a closer look at cash flow, review our article titled Smart Ways to Increase cash flow With small business financing,
  • small business financing: is an array of small business financing small business loans to a business line of credit To business credit card, It is important to understand all the funding options at your disposal. Having access to funding can help your business pay for everyday expenses navigate through a recession, For new businesses, lenders will typically use the business owner’s credit profile to make an approval decision. Once a business has established its credit profile, lenders will use it for approval decisions. Even if there isn’t an immediate need for funding, it’s smart to build a strong credit profile for your business so it’s easier to get approved when you need it.
  • the right teamIt is important to select the right team to help you grow your business. You cannot be an expert in every possible aspect of the business and as an entrepreneur, you do not have the time to execute everything that is required of you. Find out where you have gaps and bring on the right people to help plug them. Initially, this may involve establishing partnerships with vendors and then bringing resources in-house when you have the cash flow to cover salaries.

Summary

Data tells us that many business initiatives fail over time. The bottom line is that well-planned and thorough research is done before starting businesses that are built for success and longevity. Furthermore, as we saw with real estate industry statistics, external factors play a role in the success rate of businesses. Planning for the inevitable contingencies is another factor in success.

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