Administration March 12, 2008

91% of New Businesses Survive First Year

March 12, 2008 (PLANSPONSOR.com) - An ongoing study by the Ewing Marion Kauffman Foundation of over 5,000 businesses founded in 2004 found that just under 9% of firms closed in the following year.

Reported by

Rebecca Moore

In a press release on the study report, the foundation said 88% of black-owned businesses survived compared to 92% of white-owned businesses and 91% of Asian-owned businesses. Women-owned businesses had a survival rate of 89%, about three percentage points lower than businesses owned by men.

More than a third of businesses in the study (37%) reported having no revenue in their first year of operation, the release said. About 45% of businesses experienced a profit during their first year. About 17% of businesses had profits in excess of $100,000.

Nearly 44% of new businesses had no debt financing during their first year of operation. Many were started with very little debt financing: 17% of businesses started with $5,000 or less; nearly 11% started with $100,000 or more. About 80% of businesses had some positive equity investment in their business in the first year. The vast majority of equity invested came from the business owners themselves.

Just 10% of the businesses in the study used external equity sources in their first year. Parents were the most common source of external equity (3.4%), while spouses provided equity to 1.6% of businesses. Non-family informal investors and venture capitalists were used very infrequently (2.7% and 0.6%, respectively).

Nearly 60% of the businesses had no employees in their first year, while just under three-quarters had one full-time employee and about one-quarter had two or more employees. Very few businesses (less than 4%) had more than 10 employees.

Nearly 70% of businesses in the study were owned by men and just over 30% were owned by women. White individuals owned more than 81% of the businesses while black individuals owned 9%, Asians owned 4%, and the remaining 5% were owned by Native Americans, Pacific Islanders, and individuals of other racial groups. About 6.6% of the businesses were owned by Hispanics.

Data is being collected annually from the same firms, centering on the topics of debt and equity financing, employee benefits, business innovations, and outcomes such as sales and profits.

More data on the study can be viewed here .