Chase Study Delves into Small Business Life Expectancy

Everyone knows that starting a small business is a risky proposition. No matter how good a business idea may be, certain factors both in and out of your control could doom your venture within a matter of months or years. At the same time, small businesses are a vital part of the American economy, adding to the country’s growth domestic product and payroll. A new study from JPMorgan Chase explores both of these realities, looking at the vitality of certain small business types and which industries, cities, and business models offer the longest business life expectancies.

For their study, Chase looked at 1.3 million business deposit account holders that met certain criteria and were in metropolitan areas. As they explain, “We then used over 3.1 billion anonymized transactions from these businesses to produce a daily view of revenues, expenses, and financing flows for the five years between October 2012 and February 2018.” From there they broke business into four categories in order to measure their impact on the economy.

The four sectors they arrived at were: organic growth, financed growth, stable micro, and stable small employer. As the name implies, financed growth businesses are defined by their substantial use of external funding while organic growth businesses use limited external capital. The difference between stable micros and stable small employers is the number of employees, with the latter having 5 to 20 while the former has very few or none.

What Chase discovered was that 60% of small businesses fell under the organic growth or financed growth categories. Unfortunately, both were found to have higher mortality rates than stable micros or stable small employers. In fact the study states that 31% of organic growth firms fail in their first four years along with 20% of finance growth business. By comparison 15% of stable micros and 12% of stable small employers don’t make it past year four.

Despite those negative numbers it was also found that organic growth businesses generate the majority of both small business revenue and payroll, making up 51% and 52% respectively. They’re followed by financed growth firms, which account for 22% of revenue and 25% of payroll. Considering that they employ few people, stable micros only make up 4% of small business payroll but contribute 14% to overall revenue. Finally stable small employers account for 14% of revenue but 19% of payroll.

Chase’s study also looked at the median life expectancy for small business based on their industry. As you might expect, restaurants were found to have the overall shortest life expectancy, with the median coming in at just 3.7 years. Retail shops don’t fare much better at 4 years. Repair and maintenance businesses, wholesalers, and personal services were also all under 5 years. On the other end of the spectrum, real estate businesses had the longest median life expectancy at 9 years. Health care services also ranked highly at 8.8 years, besting the overall average of 5.3 years.

Interestingly various metro areas also saw widely different small business life expectancies. For example the median expectancy in Chicago, Illinois was found to be 6.2 years compared to just 4.6 in San Antonio. Chicago was joined near the top of the list by San Fransisco (6 years), New York (5.9 years) and Columbus (5.8 years) while Orlando (4.6 years) along with Las Vegas, Miami, and Atlanta (4.7 years) joined San Antonio at the bottom.

There are many factors that can determine a small business’s success. From location and industry to their growth plan and financing, each decision an entrepreneur makes could potentially play a role in their firm’s life expectancy. That said trends are always subject to change and there are plenty of other unmeasurable factors that can make all the difference. Ultimately what’s most important is the passion that goes into planning and building your business — even if that leads you to open a restaurant in San Antonio.

These studies can be a guide but shouln’t be a deterrent for us to start our dream business.

No matter what state are we in, when starting a business, we just need careful planning and hope for the best.

Comments are closed.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

Other Articles by Jonathan Dyer

Top 10 Personal Finance Articles of the Month — June 2022 

It’s time again for one of my favorite features here on Dyer News: a look at the top 10 personal finance articles of the month. To start, we'll take another look at financial independence and freedom. Then, with the housing market going a bit crazy lately, we'll feature a pair of articles on home buying. Lastly, we'll cover tips for one-income households, finance after death, fighting inflation, and more. As...

Bilt Rewards Launches Travel Portal with Benefits for Cardholders

Last year, the startup Bilt made a splash when it announced a new service that would reward users for paying their rent. That premise was then expanded upon with the launch of the Bilt Mastercard, which is issued by Wells Fargo. Now, continuing to capitalize on both the hype of their product and the demand for travel, Bilt has debuted another new offering for customers. This week, Bilt Rewards announced...

Cash App Introduces Round-Up Investing Feature for Debit Card

Debit card customers looking to grow their investments gained a new, automated option today as Block Inc. (formerly Square Inc.) officially announced a new feature for its popular Cash App. Now, customers with the Cash App Cash Card can opt into Round Ups as a means of growing their investments. When this feature is toggled on, Cash App will round up debit card purchases to the nearest dollar and invest...