Half of All Small Businesses Fail by Year 5 – Here’s Why (INFOGRAPHIC)

Why Do Small Businesses Fail?

Every business owner wants to succeed. But achieving success doesn’t come easy to most entrepreneurs.

Fifty percent of small businesses, in fact, fail in their fifth year. This shocking revelation comes from new data presented by online insurance service provider, InsuranceQuotes.

Why Do Small Businesses Fail?

But what causes these businesses to fail? The InsuranceQuotes report offers some interesting insights.

Statistics reveal majority of small businesses (82 percent) fail because they experience cash flow problems. Other factors contributing to their failure include no market need for products or services (42 percent) and running out of cash (29 percent).

Why Businesses Must Invest in the Right Idea

Businesses cannot succeed unless there’s demand for their offerings in the market. That’s why, it’s essential for you to invest in the right idea and flesh it out properly.

Data shows healthcare and social assistance (1st year: 85 percent, 5th year: 60 percent) has the best survival rate. Transportation and warehousing (1st year: 75 percent, 5th year: 30 percent), on the other hand, has the worst survival rate.

Test Waters Before Taking the Leap

Think you have found your winning idea? Give it a test run before going out in the market.

A minimum viable product (MVP) can help you gauge audience response to your product before it’s launched. You may post a video demo of how the product will work or showcase it on your website.

With an MVP, you can minimize risks and make necessary tweaks to your solution before offering it to your target audience.

It’s further important for you to communicate with your audience to engage them. You may create an online community to obtain useful insights. Engaged customers tend to be more loyal customers. It’s therefore a good idea to use online platforms to connect more closely with your target audience.

To know more, check out the infographic below:

Why Do Small Businesses Fail?

Image: InsuranceQuotes/NowSourcing 3 Comments ▼

Shubhomita Bose Shubhomita Bose is a Staff Writer for Small Business Trends. She covers key studies and surveys about the small business market, along with general small business news. She draws on 8 years of experience in copywriting, marketing and communications, having worked extensively on creating content for small and medium sized enterprises.

3 Reactions
  1. Yes. It seems that the income can go down as the years go by. The key is to invest money as well as find the aid of some financing to fuel cash.

  2. My natural instinct as someone who lives in Manhattan is that restaurants fail a lot, but, as we can see, data is a surprising thing. Either that or Manhattan data will often (usually?) be an anomaly.

    • Great point, Alex! Restaurants are kind of in a category of their own with quite a failure rate. The data we collected were more about business success/failure overall but this is a very important sub-topic!