When starting a new business, gathering and analyzing industry data can help set up your company for success. Statistics give you insights into how various factors impact other businesses, allowing you to make informed decisions about your new venture’s direction and goals.
We’ve gathered crucial statistics to help entrepreneurs prepare for the journey ahead and create a business growth plan that propels them toward success.
New business success rate
According to the Bureau of Labor Statistics (BLS), approximately 20% of new businesses fail within the first two years. This statistic jumps to 45% by year five and 64% by year 10. This means a new business is at risk for an extended period until it finds solid financial footing.
Below are some common causes of business failure:
- Lack of funding
- Poor management
- A faulty business model
- Unsuccessful marketing campaigns
- Product failure
Writing a business plan can help a new business owner carefully consider each of these areas and mitigate some of the problems their business may face. A business plan outlines the funding needed for the company, the management team’s skills and talents, and a robust marketing strategy designed to lead you to success.
Your overall marketing plan may need a local marketing strategy to market goods and services to potential customers who live in a specific area.
Average cost of starting a business
There are no set business startup costs. Costs will vary widely depending on your business’s size, scope, industry and myriad other factors. But you don’t necessarily have to start with unlimited funding. According to Kabbage, 58% of small businesses started their ventures with less than $25,000, while a third started with less than $5,000.
However, if you’re starting a business that requires leasing property, buying inventory, and hiring employees, you’ll need far more capital to get you through the first year of business.
To estimate your startup costs, consider what you’ll spend on the following aspects of your business:
- A lease
- Equipment and supplies
- Phone and internet (including website design)
- Licenses and permits
- Incorporation fees
- Business insurance expenses
- Professional services, such as hiring a CPA or attorney
- Advertising and marketing
To get a complete picture of what you need for startup costs, calculate a minimum of one year’s expenses. The Small Business Administration (SBA) recommends tallying five years of expenses to be adequately funded. Check out the SBA’s startup cost calculator to start crunching the numbers.
The many self-funded small businesses
Many entrepreneurs self-fund their businesses. According to the Chamber of Commerce, between 75% and 80% of all small businesses are funded through personal assets, meaning they don’t take out an SBA loan or secure private investors.
Most of these businesses are home-based operations with no or few employees. In this business model, the owner usually handles all aspects of the business, including marketing, sales and customer service.
The Chamber of Commerce data reveals that only 16% of new businesses get their funding through bank loans. The remainder of new businesses find and attract business investors to inject capital into the new venture.
Angel investors and venture capitalists are popular financing options. Angel investors work alone, while venture capitalists are part of a company.
Small business loan denials
Most small business loans use a business owner’s personal credit to determine the business’s financial responsibility. Without good personal credit, a business may fail to receive the necessary funding through a small business loan.
Business owners should pay down personal debt and work to raise personal credit scores to improve their chances of getting a loan. Before applying for a business loan, deal with discrepancies on your credit report and be timely with all your payments.
Check your credit before you apply for a business loan. Look for errors in the report and file a dispute if you find any. Review any derogatory items and do what you can to pay them off and make them whole.
The lengthy process of getting SBA loans
Even after the SBA approves your loan, it can take up to six months to receive your financing. Businesses must be prepared to wait for the money to fund the operation.
You can expedite the approval process by ensuring your financials are updated and the lender is a good fit for the business. A personal guarantee can also help, as it shows you have the resources to back up the borrowed funds. For example, using real estate as collateral for the business can improve funding chances and turnaround time.
Soaring new business applications
In July 2022, the U.S. Census Bureau reported 425,698 new business applications in the country. This was up 3.7% from the June number. It is noted that all of 2021 had more than 5.4 million new business applications, a record number.
This surge started in 2020, when 4.4 million new businesses were created during the pandemic as people sought to generate income after jobs took a significant hit. The Great Resignation came soon after, with more and more people seeking to run their own shop instead of working for another company.
Choosing your business structure
According to the SBA Office of Advocacy’s 2021 statistics, 86.6% of nonemployer businesses – businesses without paid employees – are sole proprietorships. In contrast, 52.1% of small businesses are S corporations, while 76.2% of large companies are C corporations.
It’s essential to choose the right business structure for your company. While a sole proprietorship is the easiest business to form, it comes with the most liability because personal and business assets are not always separate. The corporation structure offers the most liability protection because it keeps personal assets out of the company.
Talk to your business accountant or lawyer about the best company structure for your organization. They’ll be able to help you navigate the balance between simplicity, cost and liability.
Accounting for federal taxes
According to the IRS, federal corporate income tax is set at 21% for 2022. New legislation may drive this number higher. Remember that this is just the federal income tax rate, and doesn’t account for the state rates. State taxes vary widely; some have no corporate taxes and others have taxes as high as 11.5%.
Taxes are paid on profits, so a new business must be organized and able to itemize its deductions from revenues. You don’t want to pay taxes on gross revenues because that doesn’t account for the costs it takes to run the business. Consult with a tax advisor to see what are legitimate deductible expenses.
Growing opportunities for women-owned businesses
According to the American Express OPEN State of Women-Owned Business report, women opened 1,200 new businesses each day, up from 740 new businesses during the previous year. This represents approximately 40% of all new businesses started. It is estimated that women-owned businesses account for $1.4 trillion in revenues from more than 9.1 million companies.
There are many opportunities for women to start a new venture. Many organizations offer business grants for women to help fund these valuable new entities.
The impact of minority-owned businesses
Data in the 2021 U.S. Census Bureau Annual Business Survey says approximately 18.3% of businesses are minority owned. Of this number, Hispanic-owned companies comprised nearly 5.8% of businesses. African American-owned businesses made up about 28.5% of the businesses, with many focusing on the health care and social sector.
Asian-owned businesses comprised 24.5% of the market and concentrated on the accommodation and food services sector. Businesses owned by Indigenous people were responsible for more than $44.9 billion in receipts and are impactful contributors to the economy.
What overall business statistics mean to your company
It’s essential for entrepreneurs to understand startup statistics to prepare themselves and set up their ventures for success. Business survival rates should be a warning sign that proper planning is critical to success. Entrepreneurs must ensure adequate funding, which means having the right credit scores to get a loan.
Minority-owned businesses are still a small part of the business community, but these businesses have many resources available to them. Explore federal, state and community programs to help launch and run your business.