The number of businesses started each year after the recession has decreased 44.7%, according to an Experian analysis on business start-ups. In 2014, the number of newly formed small businesses fell to 16.1%, compared with 29.1% in 2010.
“During the height of the recession, there was an influx of businesses opening, presumably due to layoffs and skyrocketing unemployment,” said Peter Bolin, Experian’s director of consulting and analytics. “While many of these consumers-turned-entrepreneurs may have started their own venture out of necessity as a way to bring in income, as the economy has improved the rate of new business start-ups has returned to a more consistent pace.”
As a point of reference, according to the U.S. Small Business Administration, on average 21% of businesses fail after the first year, more than 50% after year five and more than 75% after year 15.
Markets can be unpredictable and successful businesses take work, Bolin said. “By making timely payments to creditors and suppliers, entrepreneurs can show the creditworthiness of their businesses and gain the necessary funding to help them grow and succeed.”
Restaurants were entrepreneurs’ No. 1 business of choice. In 2014, 52.3% more restaurants opened than the next-highest industry—personal services (69%). The remaining industries in the top five were miscellaneous retail (6.6%), business services (6.3%) and general contractors (5.5%).
Lenders can use this data to their benefit, Bolin said. By gaining insight into newly formed businesses, “[they] can better understand specific industries that are experiencing a higher growth rate.”
California was one of the few states to see an increase in new businesses in 2014, increasing by 17% to 14.6% since 2010. The next four states with the highest percentage of start-ups during the year were California (14.6%), Texas (10.3%), Florida (6.9%), New York (5.4%) and Georgia (3.9%).
The analysis also found that while the restaurant and personal services industries were among the most popular, they also had the two highest rates of failure in 2014, at 9.2% and 8.1%, respectively. Special trade contractors (7.3%), general contractors (6.8%) and business services (6.0%) followed.
- Diana Mota, NACM associate editor