Run it with less chaos · Every business
Half of New Businesses Close Within Five Years; Here's What the Survivors Do Differently
Federal data shows that about half of new business locations are still open after five years, and research on bank records points to steady cash flow and a cash cushion as the clearest differences between those that stay and those that close.
At a glance
- Of the private-sector establishments that opened in the year to March 2019, 79.2% were still open a year later and 51.5% after five years, and only 34.9% of those that opened five years earlier reached their tenth year, according to the Bureau of Labor Statistics.
- In JPMorgan Chase Institute data on small businesses, firms with regular weekly revenue had the lowest exit rates, and the median small business held 27 days of cash buffer, enough to pay its bills for less than a month if sales stopped.
- An owner can work out the same measure for their own business in five minutes, using two numbers from the bank statement.
The number and where it comes from
The "half close within five years" figure comes from the Bureau of Labor Statistics' Business Employment Dynamics program, which follows every private-sector establishment with employees from the year it first appears in state unemployment insurance records. An establishment is a single location, so a salon with two shops counts twice, and the data records whether a location is still operating, not why it closed; a retirement and a failure can both show up as a closure.
The curve has been steady for years, since each yearly group of openings from 2015 through 2020 kept between 50.2% and 51.9% of its locations at the five-year mark, and the pattern varies by industry; construction kept 55.8% of its 2019 openings at five years and other services, the category that holds repair shops and personal care, kept 58.3%.
What the survivors do differently
Bank-account research comes closest to explaining the closures, because it follows money moving in and out of each business week by week. When the JPMorgan Chase Institute followed 138,000 small businesses founded in 2013, firms whose revenue arrived in a regular weekly pattern in their third year exited at the lowest rate, 3% in their fourth, while firms whose expenses swung widely relative to their revenue exited at 21%, which makes a predictable rhythm of income one of the most visible differences between the businesses that stay open and those that don't.
Cash on hand is the second difference, and most small businesses have little of it. The Institute's study of 597,000 small businesses found that the median business could pay 27 days of outgoing bills from its bank balance if no money came in, and a quarter held fewer than 13 days. Federal Reserve survey data shows how common cash strain is, since in the 2024 Small Business Credit Survey of 7,653 employer firms, 56% named paying operating expenses as a financial challenge and 51% named uneven cash flows.
A third difference is everyday practice. A study of more than 20,000 small firms in seven developing countries, published by the National Bureau of Economic Research, found that firms with better habits in marketing, record-keeping, stock-keeping and financial planning had higher survival rates and faster sales growth, a result that is a direction for U.S. owners rather than a benchmark.
Working out your own cash buffer
The JPMorgan Chase Institute defines cash buffer days as the number of days of outgoing payments a business could cover from its cash balance if its inflows stopped, and the calculation takes two numbers.
| Cash in the business bank account (Assumption) | $18,000 |
|---|---|
| Money going out per month (rent, payroll, supplies, loan payments) (Assumption) | $27,000 |
| Average spending per day (Calculated ($27,000 ÷ 30)) | $900 |
| Cash buffer days (Calculated ($18,000 ÷ $900)) | 20 |
| Cash needed for 30 days (Calculated (30 × $900)) | $27,000 |
| Gap to 30 days (Calculated ($27,000 − $18,000)) | $9,000 |
| Weekly set-aside (Assumption) | $750 |
| Weeks to reach 30 days (Calculated ($9,000 ÷ $750)) | 12 |
Illustrative example; replace every assumption with your own numbers.
For a more precise figure, average the daily bank balance across a month rather than using a single day's balance, since a balance taken the day after customers pay will flatter the result.
How you compare
- All small businesses: the median holds 27 cash buffer days, and a quarter hold fewer than 13.
- By industry: the median restaurant holds 16 days, repair and maintenance 18, construction 20, personal services 21 and health care services 30.
- Your own baseline: work out your buffer days on the first Monday of each month and watch whether the number rises or falls.
About this research: Survival figures come from the Bureau of Labor Statistics' Business Employment Dynamics tables, which count establishments with employees. Cash figures come from two JPMorgan Chase Institute studies of Chase business deposit accounts, the Federal Reserve Banks' 2024 Small Business Credit Survey and an NBER study of business practices. These studies show patterns, not proof that one habit keeps a business open. The worked example is illustrative. General information, not financial advice; talk to a licensed professional about your situation.
Sources
- U.S. Bureau of Labor Statistics. Business Employment Dynamics: Survival of private sector establishments by opening year, all industries, construction and other services. Data through March 2025.
- Farrell, D., Wheat, C. and Mac, C. Growth, Vitality, and Cash Flows: High-Frequency Evidence from 1 Million Small Businesses. JPMorgan Chase Institute, 2018. 1.3 million small businesses; 2013 founding cohort of 138,000.
- Farrell, D. and Wheat, C. Cash is King: Flows, Balances, and Buffer Days; Evidence from 600,000 Small Businesses. JPMorgan Chase Institute, 2016. 597,000 small businesses.
- Federal Reserve Banks. 2025 Report on Employer Firms: Findings from the 2024 Small Business Credit Survey. 2025. 7,653 employer firms.
- McKenzie, D. and Woodruff, C. Business Practices in Small Firms in Developing Countries. NBER Working Paper 21505, 2015. More than 20,000 small firms in seven countries.
Related reading: The Systems Long-Running Home Service Businesses Have in Common · What Is a Business System? A Plain Explanation With Examples · Cash Flow, Not Sales, Is Why Many Small Businesses Fail · Revenue Isn't Profit: Why Growing Businesses Run Out of Cash
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