A Young Business Is About a Fifth Less Likely to Close in Any Given Year Than in the 1980s. The First Year Is Still the Hardest.

Four decades of Census data say the early years of an employer business have become easier to survive — at every age from one to five, and not as a side effect of a change in who is starting.

The young-firm closure rate, over four decades

The Business Dynamics Statistics track American employer firms from year to year and record each one’s age. A firm counts as closed when it had employees one March and none the next. Averaged over five-year spans, the share of one-to-five-year-old firms closing each year was above 15% in the first two spans, 1983–1992, eased to 13.3% in 1998–2002, rose to 14.5% across the 2008–2012 span that holds the Great Recession, and fell to 12.2% in 2018–2022. Looking year by year, the rate topped 15% in eight years: six between 1985 and 1991, then 2008 and 2009. It has not done so in any year from 2010 to 2022.

In the 1980s, about one young employer business in six and a half closed each year. Before the pandemic, it was about one in eight.

Every year of age got easier, not just the average

An average across ages one to five can move on a shift in the mix alone — fewer start-ups would mean fewer first-year firms, which close most often, and a lower average with no change at any age. So each age is checked on its own. All five fell between 1983–1987 and 2015–2019: the first year from 21.7% to 17.1%, the second from 15.4% to 12.2%, the third from 12.6% to 10.5%, the fourth from 11.1% to 9.4%, and the fifth from 10.1% to 8.8%. Recomputing the later rate with the 1980s age mix gives 12.4% — so the mix accounts for less than a tenth of the fall.

Older firms improved too, but less

The fall is not only a young-firm story. Firms aged six to ten went from 8.8% to 7.2% a year, down 18%. Firms aged eleven to fifteen — measurable only from 1988 — went from 6.8% in 1988–1992 to 5.9%, down 13%. Across all employer firms, the rate went from 9.0% to 7.0%. In relative terms, the one-to-five band improved the most of the three age bands. The data record closures, not causes, and this article does not offer one.

What to do with this if you are in the first five years

The odds are better than they were in the 1980s, and they improve with each year you trade. But they are still steep at the start. Before the pandemic, about 17.1% of first-year employer firms closed within the year, roughly double the 8.8% at age five. Recessions also move the rate: in 2009 it reached 16.2% across ages one to five. The practical reading is to plan for the first two years as the stretch that matters most, and to keep the reserves that let you trade through a bad one.

Four limits worth holding. These are employer firms only — businesses with no employees are not in this data. A closure is a firm going from some employees to none between two Marches, so a firm that keeps trading with no employees counts as a closure here. The rate here divides closures by every firm of that age at the start of the year, not by the survivors. And the newest year, 2023, reads 14.5% for ages one to five, but Census notes that the final year of a release has the least information behind it and that some recorded closures are later reversed when late filings arrive. It is left out of every comparison here.

Published by The Lonely Entrepreneur — the community and coaching platform for entrepreneurs who are building alone. lonelyentrepreneur.com

This article is for educational purposes and is not a substitute for professional financial or legal advice.