Business failure statistics (2026): A data-driven look at why companies fail

Starting a business remains one of the most ambitious undertakings in modern life. The United States hosts 32.5 million small businesses, representing 99.9% of all U.S. businesses according to the Small Business Administration. Yet many entrepreneurs enter the marketplace haunted by alarming failure statistics that often prove exaggerated or misleading. This article separates fact from fiction, examining the real business failure statistics, and identifying the key factors that determine whether a venture thrives or collapses.

Contrary to popular belief, the business landscape offers more hope than doom. According to 2024 data from the U.S. Bureau of Labor Statistics, the actual failure rates tell a nuanced story:

First-year survival: Approximately 79.6% of businesses survive their first year, meaning only about 20.4% fail within the initial twelve months. This directly contradicts the widespread myth that half of all businesses collapse immediately.

Five-year mark: After five years, 50.6% of businesses remain operational. While roughly half do close by this point, survival rates vary dramatically by industry and business model.

Ten-year benchmark: By the decade mark, 34.7% of businesses continue operating. The 65.3% closure rate over ten years includes voluntary closures, acquisitions, and transitions—not just failures.

Traditional small businesses and venture-backed startups face fundamentally different risk profiles. Understanding this distinction matters when interpreting failure statistics.

Research from Harvard Business School reveals that 75% of venture-backed companies never return cash to investors, with 30-40% of those liquidating assets entirely, resulting in total investor loss. This higher failure rate reflects the inherent risk-reward profile of startup investing—companies pursue aggressive growth strategies that either succeed spectacularly or fail completely.

Key startup statistics include:

Understanding why businesses fail provides the roadmap for avoiding common pitfalls. Research consistently identifies several key factors.

According to SCORE (Service Corps of Retired Executives), 82% of small businesses fail due to cash flow problems. Cash flow issues manifest in multiple ways: inadequate startup capital, slow receivables, slimmer-than-expected profit margins, and higher operating expenses. Many profitable businesses on paper collapse simply because they cannot cover immediate obligations while waiting for payments to arrive.

The U.S. Chamber of Commerce reports that nearly 35% of small businesses fail because insufficient demand exists for their product or service. For startups specifically, this figure rises to 42% according to CB Insights analysis. No amount of marketing expertise can save a business selling something customers simply do not want.

Approximately 23% of startups fail because they lack the right team, according to industry research. Poor management accounts for 19% of startup failures. Business owners who lack experience in finance, marketing, hiring, or operations often find themselves overwhelmed.

About 20% of businesses fail because they cannot compete effectively. Small businesses often struggle against larger, more established companies with greater resources, broader reach, and deeper pockets for marketing and innovation.

Approximately 15% of startups struggle with pricing strategy or cost management. Setting prices too low erodes margins; setting them too high drives customers to competitors. Meanwhile, inadequate expense control can drain resources regardless of revenue levels.

17% of startups fail due to overexpansion. Expanding too quickly without adequate resources can strain operations and finances. Funding expansion through current operations is risky as it can put the business into a cash flow crisis.

Failure rates vary dramatically across industries. The U.S. Bureau of Labor Statistics provides detailed breakdowns showing which sectors offer the best odds for entrepreneurs.

Perhaps no industry suffers more from exaggerated failure statistics than restaurants. The widely cited claim that "90% of restaurants fail in their first year" originated from an unsourced 2003 American Express TV commercial and has no basis in reality.

Research from the University of California, Berkeley and the National Restaurant Association reveals the actual picture: only about 17% of restaurants fail in their first year—actually lower than the 19% average for all service-providing businesses. The National Restaurant Association estimates a 30% average failure rate in early years, while Datassential's 2025 data shows first-year failure dropped to just 0.9%, the lowest since at least 2018.

Bankruptcy filings provide another lens for understanding business distress. According to the Administrative Office of the U.S. Courts, business bankruptcy filings rose 5.6% to 24,039 in the twelve months ending September 2025. Total bankruptcy filings (including personal) increased 10.6% to 557,376 cases.

Business bankruptcies reached 6,574 in Q3 2025—the highest since Q2 2014 and 15% above the 2019 average, according to Coface analysis. This marks the first time bankruptcy figures exceeded pre-pandemic levels for two consecutive quarters. Rising inflation, higher interest rates, low consumer confidence, and sector-specific pressures (particularly in retail, healthcare, and construction) drive this increase.

In calendar year 2025, commercial bankruptcy filings increased 5% to 31,810, while small business Subchapter V filings rose 11%, signaling continued distress among smaller operators.

There were 517,308 bankruptcy cases filed in 2024, both individual and business—a 14.2% increase from 2023. While still below pre-pandemic peaks, the steady increase reflects evolving economic pressures.

A PwC analysis found that startup failure rates in the UK reached their lowest level in a decade in 2024. Startups accounted for just 46% of total company insolvencies—the first time below 50%—despite record company formations. The decade average stood at 60%. However, non-startup insolvencies remain twice as high as pre-pandemic levels, suggesting established businesses face mounting pressure.

Research reveals that certain founder characteristics correlate with business success:

Age matters: Founders around 45 years old demonstrate the highest success rates. Entrepreneurs over 30 have a notably better chance of succeeding, with 0.17% reaching top 0.1% growth compared to just 0.09% of under-30 founders.

Experience compounds: Serial entrepreneurs who previously succeeded have a 30% success rate compared to 18% for first-time founders.

Partnership power: Two founders increase success chances by 30% due to combined investment, broader skills, and higher growth rates.

Technology adoption: A 2023 survey found that 68% of small businesses using digital tools reported steady or increasing income, while those ignoring technology struggled.

Even well-funded ventures collapse. The three most expensive startup failures illustrate that capital alone cannot guarantee success:

Based on the data, successful businesses consistently demonstrate certain practices:

Validate market demand before launch. The National Federation of Independent Business reports that companies with comprehensive business plans have the best success rates.

Maintain cash reserves. Experts recommend keeping 1-2 years of operating capital available. Monitor cash flow weekly, not monthly.

Build the right team. Recognize skill gaps and hire accordingly. Poor hiring practices compound problems quickly.

Embrace technology. Not having a strong online presence increases failure risk by 50%. Invest in digital tools for efficiency and customer reach.

Consider accelerator programs. Participation reduces failure rates by 10-15% through mentorship, resources, and networking.

Avoid bootstrapping alone. 82% of bootstrapped startups fail. While self-funding offers control, external investment can provide the necessary capital for scaling and growth.

Business failure statistics, properly understood, paint a more encouraging picture than popular myths suggest. While entrepreneurship carries real risks, the data shows that most businesses survive their first year, and roughly half make it to the five-year mark. Success depends less on luck and more on preparation: understanding market demand, managing cash flow effectively, building strong teams, and adapting to changing conditions.

As Amy Quackenboss, Executive Director of the American Bankruptcy Institute, noted: "Bankruptcy provides a proven process for struggling families and businesses wrestling with mounting debt to achieve a financial fresh start." But for those who prepare wisely, that fresh start may never be necessary. The path to business success begins with understanding the real numbers—and the real reasons—behind business failure.