COSTA MESA, Calif.—A new study reveals that the number of new businesses started each year after the recession has decreased substantially.
An Experian analysis on business start-ups shows that in 2010 29.1% of all small businesses were newly formed, while in 2014 just 16.1% were start-ups—a drop-off of nearly 45%.
“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.”
The analysis also found that the restaurant industry was the top choice for entrepreneurs looking to start new businesses. In 2014, there were 52.3% more restaurants opened than businesses in the next-highest industry. The remaining industries in the top five include personal services (6.9%), miscellaneous retail (6.6%), business services (6.3%) and general contractors (5.5%).
“It’s more important than ever to understand trends in the small-business sector because they are such a critical component to the growth and success of our economy,” continued Bolin. “By gaining insight into newly formed businesses, potential entrepreneurs and lenders can use the data to their benefit. Entrepreneurs can get an idea of which industries are most popular (and potentially more competitive), while lenders can better understand specific industries that are experiencing a higher growth rate.”
Despite the drop-off in business start-ups on a national level, California was one of the few states to see an increase in the number of businesses started in 2014, increasing by 17% since 2010. Furthermore, the top five 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%).
On the other end of the spectrum, according to the U.S. Small Business Administration, on average 21% of businesses fail after the first year. However, more than 50% of businesses close after year five, and more than 75% will shut down operations after year 15.
Additionally, the analysis 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. They were followed by special trade contractors (7.3%), general contractors (6.8%) and business services (6.0%).