Small Business 11-4-24

The Small Business Administration (SBA) defines a small business in the United States as a business that meets the following criteria: 

Number of employees: Has fewer than 500 employees 

Annual receipts: Has average annual receipts under $7.5 million, with some exceptions by industry 

Ownership: Is independently owned and operated 

Location: Has a place of business in the US and operates primarily within the US 

Dominance: Is not dominant in its field on a national basis  

The SBA also assigns size standards to each North American Industry Classification System (NAICS) code. 

Small businesses can vary in size, revenues, and regulatory authorization. Some small businesses, like a home accounting business, may only need a business license. Others, like restaurants serving liquor, day cares, and retirement homes, may need inspection and certification from government authorities. 

According to the U.S. Bureau of Labor Statistics (BLS), about 1 in 4 small businesses in the United States fail within their first year of operation. Here are some other small business failure rate statistics for 2024:

Failure rates by industry The healthcare and social assistance industry has the highest survival rate, with 85% of businesses surviving their first year. The transportation industry has the lowest survival rate, with only 75% of businesses surviving their first year. 

Failure rates by reason The most common reasons for small business failure include: 

Cash flow problems: 82% of small businesses fail due to cash flow problems 

Lack of market demand: 42% of small businesses fail due to a lack of market demand 

Mismatched team: 23% of small businesses fail due to having a mismatched team 

Competition: 19% of small businesses fail because of competition winning 

 

Survival rates by year

BLS reports that 20% of businesses fail in the first year, 30% by year two, and 50% by the five-year mark 

Treasury Department reports that 23.2% of businesses fail in the first year, 48% fail by two years and 65.3% fail in 10 years.  

Survival rates for businesses increase as they establish themselves. For example, more than two-thirds of businesses that survive five years also survive ten years. 

The transportation and warehousing industry has the highest percentage of businesses fail in their first year, with 24.8% failing. The mining, quarrying, and oil and gas extraction industry is second with 24.4%, and the information industry is third with 24.1%.

The US Government defines “failure” when businesses close. The reason that a business closes could be caused by the Owner Retiring or Selling the Business.

Death and Retirement of Private Business Owners of Family-Owned Businesses is the major cause of what government calls “failure”. If the value of the Private Company exceeds the estate tax exemption.

In 2024, the first $13,610,000 of an estate is exempt from taxes, up from $12,920,000 in 2023. Estate taxes are based on the size of the estate. It's a progressive tax, just like our federal income tax. That means that the larger the estate, the higher the tax rate it is subject to.

Reasons why businesses fail  Figuring out why small businesses fail is a bit trickier because “failure” as defined by these statistics is simply the business no longer existing—anything else will have to be self-reported by the founder, and that isn’t always reliable. CB Insights research based on over 100 startup post-mortems found these reasons listed most often for why the founder thought the business failed:

42% – no market need for their services or products

29% – ran out of cash

23% – didn’t have the right team running the business.

19% – bested by a competitor

18% – pricing and cost issues

17% – failed because of a poor product offering

17% – failed because they lacked a business model

14% – failed because of poor marketing

14% – failed because they ignored their customers

https://www.commerceinstitute.com/business-failure-rate/

Comments

The “BLM Riots“ in 2000, Shutdowns” in 2001 and “Smash and Grab Looting” in 2002 have thinned out many retail locations. The inflation from 2021 to 2024

has had an equal affect on retail operations. Poor communities are now without neighborhood grocery stores, pharmacies, restaurants, fast food and retail stores. The Illegal Migrant Invasion and Homeless Invasion from 2021 to 2024 has made access to stores less attractive and less safe. Many employees continue to work from home. They eat at home. There are opportunities to reopen small businesses, but most are in poor neighborhoods. The large restaurant chains have closed locations.

Norb Leahy, Dunwoody GA Tea Party Leader