Small Business Survival Rate Calculator
The odds of survival for the average business are not in your favor. Many
people agree with the estimate that 9 out of 10 companies will ultimately fail and
supporting data from the Bureau
of Labor Statistics over the last 26 years pegs the small business survival rate at
Business risk is unavoidable, but having good business risk management
strategies can help you come out the other side as a small business survivor.
So how can business risk be quantified or calculated? Risk is basically a set of
probabilities determined by the chances of an event occurring combined with the consequences
if it does occur.
Risk = Probability x Consequence
If the likelihood of a particular event is rare, and the consequences negligible, then the
risk is subsequently low. On the other hand, if the probability is high and the consequence
is devastating to your business, it’s a high-risk event and you’ll need to
assess a plan for navigating that risk.
Business Risk Assessment
Whether existential (like a pandemic) or internal (like an ineffective team), your business
is being threatened on a near constant basis. The following key factors must be considered
when assessing business risk and are some of the factors in our calculation for startup
Startups are inherently risky ventures and investors are rightfully hesitant to invest. If a
business is just getting started they are likely reinvesting every dollar that comes back to
the business and still in need of more money. If the entrepreneurs can’t effectively
and quickly raise capital, they run the common risk of running out of money.
This is why it’s important to be conservative with your spending and proactive in your
fundraising. After studying his portfolio companies, successful VC Fred Wilson advises
companies to plan for 18
months of runway and three to six months of fundraising.
One clear indicator of business survival is regular cash flow analysis and management. Cash
flow constraints are sometimes unavoidable but with a little foresight and planning, their
impact can be less threatening to your business.
Operational and Strategic Risks
In addition to financial risk, if your team can’t execute your business plan or have
the wherewithal to know when the plan is flawed and pivot, you will be doomed for failure.
This is why you should consider your team’s average experience level for both industry
expertise and managerial experience.
Another metric for business success is how forward-thinking you are in your strategy. Are you
a detailed planner that executes on that plan? The old adage of “A failure to plan is
a plan for failure” could not be more relevant in business.
More threatening than the many internal risks associated with running a business, ultimately,
the business is at the mercy of the market. If the market for your business suddenly
changes, contracts, consolidates, or ceases to exist, your risk of failure skyrockets.
Are you disrupting incumbents of a long-entrenched industry or are you on the frontline of an
innovative new industry? Either way, the expansion or contraction of the market could be the
biggest factor in your ultimate success or failure.
Tips to Avoid Business Failure
With the small business failure rate likely to hit all-time highs in the wake of the global
pandemic, avoiding this precarious fate will be challenging for most. If you calculate your
odds of success and find your business is more likely to fail, consider some of the
- Raise enough funding to have 18+ months of runway.
- If more funding is needed, begin raising 6+ months before you will need it.
- Use conservative cash flow management practices.
- Set objectives and key results (OKRs) to measure your team’s performance.
- Pivot towards markets or market segments with compounding growth.
Whether or not you currently feel the pressure of a failing business, it’s important
that business leaders take a proactive approach and plan for the worst-case scenario.
Startup risk is real but you can avoid becoming another statistic by implementing these best
practices. EquityNet has helped thousands of startups and established businesses optimize their business plan and
raise equity capital through a network of angels and venture capitalists.