Small businesses are the heartbeat of the U.S. economy. They provide employment as well as goods and services to large swaths of the population. That’s why the Mastercard Economics Institute (MEI) analyzes and spotlights small business trends in the U.S. In this edition of the “Did you know?” series, MEI uses aggregated and anonymized Mastercard insights to examine business survival rates by size, age and medium of transactions of businesses (online vs. offline vs. omnichannel).1
MEI’s analysis shows that small business survival rates hit a low point in March 2020 at the start of the pandemic but have since increased, returning close to the pre-pandemic trend.
At the same time, estimates of business applications from the U.S. Census Bureau remain well above pre-pandemic levels, indicating positive net business formations and contributions from entrepreneurism to the U.S. economy.2
Small businesses are facing headwinds from elevated inflation and high interest rates. But they're benefiting from robust growth in consumer demand for goods and services and omnichannel retailing, which has provided multiple outlets to reach consumers.
Which sectors have the highest and lowest survival rates? Are survival rates higher for services sectors or for retail?
Did you know?
MEI’s analysis finds that business survival rates are well above their pandemic lows.
In August 2023, there was a 96.7% chance of small businesses that are less than 12 months old (young small businesses) being active within the next six months and a 99.1% chance of young large businesses being active, compared to 92.8% and 97.8%, respectively, in March 2020. Before the onset of the pandemic, in August 2019, survival rates were higher, at 97.1% and 99.4% for young small and large businesses, respectively, suggesting there is room for further recovery.3
Soon after formation, smaller businesses face significant financial constraints while trying to build customer bases that enable sustainable cash flow.
For mature businesses – businesses that are more than 12 months old – MEI estimates that survival rates in August 2023 were 98.5% and 99.5% for small and large businesses, respectively. This indicates that once smaller businesses have the resources to push through early challenges, they become much more viable.
Services sectors have structurally higher survival rates (see chart above).
Between January 2023 and August 2023, average monthly survival rates for young small hotels & motels (98.5%), restaurants & bars (97.7%) and professional & personal services (97.7%) were above other sectors.
On the other hand, more competitive sectors such as clothing (96.0%), travel agencies (95.7%) and electric-appliance stores (95.2%) had the lowest survival rates.
Small hotels & motels that formed during the second half of 2020 had higher survival rates than small hotels & motels formed during other periods.
MEI’s prior analysis prior analysis shows that small hotels & motels grew between 2019 and 2023. That may have reflected a preference for local travel immediately following the pandemic before consumers became more comfortable traveling farther by plane. The higher survival rates for small hotels & motels formed during the second half of 2020 indicates they benefited from strong initial demand. They have survived for longer, highlighting the importance of robust cash flow in the early stages of businesses’ life cycles.
In the aggregate for other sectors, we find that survival rates tend to be higher for small businesses formed in 2021 and 2022, after the pandemic ended.
Business survival rates tend to be seasonal, declining around the fall for several industries.
Recreational services and restaurants & bars sectors exhibit strong seasonality, with the number of active businesses declining before the winter.
The number of active clothing stores declines after the holiday shopping season. A similar trend is observed for interior furnishing stores with construction and home sales slowing significantly during the frigid winter months.
Businesses that are omnichannel, with transactions that are both online and in-person, have the highest survival rates (see chart below).
MEI finds that survival rates for small omnichannel businesses averaged 98.6% between January 2023 and August 2023. Omnichannel businesses benefit from being able to interact with the empowered consumer - who values options - in many ways at any time.
Survival rates for small businesses that are only online are below that of omnichannel businesses, at 97.1%, likely reflecting lower barriers to entry and exit.
Small in-person businesses have lower survival rates than omnichannel but higher than online, reflecting higher hurdles to shutting down operations in physical stores.
To learn more about economic insights from the Mastercard Economics Institute, contact your Mastercard representative or request a demo.
Notes & Disclaimer
About the Mastercard Economics Institute
Mastercard Economics Institute launched in 2020 to analyze macroeconomic trends through the lens of the consumer. A team of economists, analysts and data scientists draws on Mastercard insights - including Mastercard SpendingPulse™ - and third-party data to deliver regular reporting on economic issues for key customers, partners and policymakers.
Disclaimer
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This Mastercard Economics Institute presentation (This "Presentation") and content or portions thereof may not be accessed, downloaded, copied, modified, distributed, used or published in any form or media, except as authorized by Mastercard. This presentation and content are intended solely as a research tool for informational purposes and not as investment advice or recommendations for any particular action or investment and should not be relied upon, in whole or in part, as the basis for decision-making or investment purposes. This presentation and content are not guaranteed as to accuracy and are provided on an "as is" basis to authorized users, who review and use this information at their own risk. This presentation and content, including estimated economic forecasts, simulations or scenarios from the Mastercard Economics Institute, do not in any way reflect expectations for (or actual) Mastercard operational or financial performance.
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A business is classified as active if it has at least one transaction in any of the next six months. The survival rate for the reference month is the number of active businesses as a percentage of the total number of businesses.↩︎
Young businesses are defined as being less than 12 months old and mature businesses are greater than 12 months old.↩︎