Between 150,000 and 198,000 more U.S. businesses failed in the first 12 months of the COVID-19 pandemic than the roughly 600,000 companies that close in a given year, according to the Federal Reserve. About 100,000 of those excess failures were small services-oriented enterprises engaged in close contact with customers, like hair salons and sit-down restaurants.
Even without a devastating worldwide viral outbreak, starting a business comes with a sizable risk of failure. The chance of any for-profit enterprise in the United States lasting longer than five years is about 50-50, according to official government data. (Here are counties that lost the most businesses during the pandemic.)
To determine the likelihood a new business will fail in every state, 24/7 Wall St. reviewed data on establishment openings and closings from the Bureau of Labor Statistics’ Business Employment Dynamics program. States were ranked based on the percentage of businesses started in March 2016 that were still in business in March 2021. In Washington state, 60% of businesses fail within five years, the highest failure rate. In neighboring Oregon, only about 42% of businesses fail in that time frame, the lowest rate.
The share of U.S. economic activity generated by small businesses has been shrinking over the decades, but these enterprises remain a steadfast part of national prosperity. A 2019 report from the U.S. Small Business Administration estimated that small businesses accounted for nearly 44% of the country’s economic activity in 2014, down from 48% in 1998 but still considerable.
With some exceptions based on specific industries, the SBA defines a small business as an independently owned for-profit enterprise employing 500 or fewer people. These can include anything from a small auto parts supplier to a family run restaurant. Businesses that fit into the small category account from 76% of all establishments in Tennessee to 89% in Montana. (Here are states where the most people applied to start a business in 2021.)
The average age of American enterprises range from nearly 17 years in Iowa and Vermont to just under 11 years in California and Nevada. Nebraska and Utah enjoy the lowest unemployment rate while also having an above-average share of small businesses.
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