Startup Business Failure Rates by Industry (Stats and Infographic)

Last updated on November 29th, 2018 at 11:02 am

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Far be it from me to put you entrepreneurs off of starting up your own business, as I think it is one of the most exciting and self affirming things you can do, but I feel it is my duty to point out that there are risks associated with starting a new business.

A US analysis of small business success rates reported on statisticbrain.com suggests that 25% of small businesses fail in the first year, 36% fail by year 2 and 44% fail by year 3. Of course, this is US data but I wouldn’t be surprised if the trend was replicated in the UK and in other major economies. The statistics brain research also showed that some sectors had higher failure rates than others with Finance, Insurance, Real Estate, Education Health having the highest success rates and the Information sector having the lowest success rates by some way.

Businesses With Best Success Rates After 5 Years.

The study also showed the businesses with the best success rate after 5 years and these were:

  1. Religious Organizations
  2. Apartment Building Operators
  3. Vegetable Crop Productions
  4. Offices & Clinics of Medical Doctors
  5. Child Day Care Services

Businesses With Worst Success Rates After 5 Years.

The study also showed the businesses with the worst success rate after 5 years and these were:

  1. Plumbing, Heating, Air Conditioning
  2. Single-Family Housing Construction
  3. Grocery Stores
  4. Eating Places
  5. Security Brokers and Dealers
  6. Local Trucking

As well as this a separate infographic by top-business-degrees.net reports some similar stats in relation to small business success rates, although their stats are a little more pessimistic, suggesting that 50% of business fail within the first 5 years and 95% fail within the first five years.

London Business Are Most Likely To Fail
According to data from the Enterprise Research Centre London has the lowest start-up survival rate in the UK, with just 50.1% of companies established in 2013 surviving for 3 years, which is 3.6 percentage points below the national average.

However, this high failure rate is not thought to be down to tough conditions in the capital, it’s just down to the fact that so many people attempt to make it in London. On the other hand, companies that make it in London, do exceedingly well, with London having the highest concentration of high-growth enterprises. To be a high growth enterprise a firm needs to grow by 20% (in terms of staff and turnover), for 3 years in a row or more. It’s thought that London, (along with Birmingham, Manchester and Lincolnshire which are high-growth regions too), have an effective and long running support network for start-ups.

If you are looking to start a business in London, try reading these books from some of Britain’s most successful entrepreneurs.

Not close enough to densely populated areas…

Other environmental factors that drive start-up growth were found to be, ‘proximity to areas with high population density’, and ‘access to an educated work-force’. Starting a business in a rural region was shown to be detrimental to business growth versus starting in an urban area.

Too far from a motorway

The researches also noted a ‘motorway effect’ which found that areas around the M3 and M4 were good at fostering growth in companies with between £1 and £2 million turnover.

Highest Risk Businesses

In this infographic they identified the highest risk area to start a business was in retail stores (80% fail in five years) followed by Independent Restaurants (60% failure rate).

Poor financial management is one of the key reasons for start-up failure and if you are planning to go self-employed or start a business, it makes sense to use professional accounting software, such as Freshbooks Cloud Accounting which you can see in action below.

It can automate many of your financial management processes, give you greater control over your business and contains lots of tax time reports such as Profit and Loss, Expense Reports and Payments collected that will make your income tax return a breeze. You can have a look at the Freshbooks financial Reporting Page here.

Click to try out FreshBooks Cloud Accounting.

If you are planning to start your own coffee shop or restaurant, I recommend that you read this bestselling book to help you on your way: Start up and Run Your Own Coffee Shop and Lunch Bar.

Alternately, if you are planning to start your own retail business/shop, then I’d strongly recommend this bestselling book written by Clare Rayner, a renowned retail expert, The Retail Champion: 10 Steps to Retail Success. It averages 4.5 out of 5 star reviews on Amazon  based on over 20 reviews and has been well road-tested.

Another useful read for retail entrepreneurs is: Smart Retail: Practical Winning Ideas and Strategies from the Most Successful Retailers in the World. This is another 4 star out 5 rated book based on 16 reviews, which is a must-read as it contains tips and advice from some of the most successful pioneer retailers in the world.

infographic

Recommended reading for entrepreneurs

As you can see, starting up a new business comes with great risk, but these risk can be mitigated with proper advanced planning and education. There are several books that I would recommend for entrepreneurs.

HubSpot

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