The D.C. region is consistently ranked as one of the top cities for entrepreneurs and startup businesses, but the failure rate of new businesses is also high.
According to LendingTree research, the failure rate of D.C. startups during their first year in business is 32.2%, compared to 23.2% nationally. That’s based on the latest data from the U.S. Bureau of Labor Statistics.
The failure rate in D.C. after five years climbs to 58.1%. When compared to states, that makes the new business failure rate in the District the highest in the nation.
In D.C., almost 71% of business startups fail within 10 years.
D.C.’s high cost of living plays into startup failures.
“If you’re starting a brick-and-mortar business for example, the cost of starting up may be prohibitive for folks and may make a steeper climb for that first year to get to profitability,” said Matt Schulz, chief credit analyst at LendingTree.
Many entrepreneurs starting a business do not have brick-and-mortar expenses, be it an e-commerce venture, consulting or accounting. One of the top reasons for new business failures is enthusiastic entrepreneurs who think they have a great idea, but they don’t have a great plan.
“Business owners doom their business from the start sometimes just by failing to do the proper research and develop a sensible plan,” Schulz said. “Taking the time to develop that plan is just invaluable.”
All startups need access to capital, be it through self-funding, or seeking backers or bank loans. No matter how good the idea, if an entrepreneur’s own personal finances are not great, their new business has shaky finances, too.
“There are few things in life that are more expensive than crummy credit, and that can certainly make a difference when you are trying to start a business and get access to capital,” Schulz said.
Even with a strong business plan, access to sufficient capital, and an in-demand skill or service, startups still fail. Sometimes it is just bad luck, the wrong location for a brick-and-mortar business, or the timing isn’t right.
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