May 12, 2013

Business Survival Rates

You've probably heard someone cite a statistic like "X% of small businesses fail in the first Y year[s]".    It seems that every time I hear someone cite that 'fact' the numbers vary.   I've talked about these varying and potentially misleading numbers before.

A while back Joe over at Retireby40 cited such a statistic and I asked him if he had a source.   Turns out he did and he pointed me to the data from the BLS :

Survival rates of establishments, by year started and number of years since starting, 1994–2010, in percent

That site has a chart showing the % of businesses which survived between certain years.    The rates vary depending.   For example 80% of businesses started in 2000 were alive 2 years later, but only 74.4% of the businesses started in 2008 lasted 2 years.   I assume that shift is related to the rough economy during the recession.

While the numbers vary from year to year we can draw some general observations from the data:

About 50% of businesses last 5 years.
Roughly 1/3 of businesses last 10 years.

Those aren't exact but close enough.    In fact the 5 year survival rate ranged from 49% to 55% and the 10 year rate varied from 34 to 37%.

I'm not really sure what the BLS does to measure survival of a business.    If a business doesn't survive that doesn't necessarily mean it failed.    If I retire and sell the business does it survive?  I wouldn't think so.  What if I move out of state?    What if my business is bought by another business?   

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