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Missouri among states with most new business closures during pandemic

by Cameron Gerber | June 7, 2022 at 4:00 a.m.
In this photo made with a zoom lens, an optimistic sign is seen in the window of a closed small business Thursday, April 16, 2020 in Kansas City, Mo. Many nonessential businesses were closed due to stay-at-home orders put in place in an effort to curb the spread of the coronavirus that causes COVID-19.

JEFFERSON CITY, Mo. -- COVID-19 led to a volatile market for new businesses in 2020, and a new study shows that almost a quarter of those opening their doors in Missouri during the dawn of the pandemic were shuttered a year later.

Missouri has the fifth-highest first-year business failure rate in the country with nearly 23 percent of new businesses shuttering in their first year, with its 55 percent failure rate after five years in business also among the highest in the country, according to the report. It was also within the top 20 states for its 10-year business failure rate.

The study, compiled by online business platform LendingTree, ranked states based on March 2011-21 data from the U.S. Bureau of Labor Statistics, with first-year statistics looking at businesses that opened their doors around the time of shutdowns and restrictions amid the initial surge of the COVID-19 pandemic in the U.S.

According to that data, start-ups quickly closing their doors was a national trend: The U.S. saw around 18 percent of private sector businesses shutter within the first year. After five years, that number rose to nearly 50 percent and settled at 65.5 percent after a decade of business.

Although the widespread economic impact of the pandemic included business closures, dining restrictions and health orders throughout the country, the national first-year closure rate between March 2020-March 2021 was around 18.5 percent.

"Despite Americans opening these businesses amid the start of the crisis, they fared better than people who began one the year before," the report read. "In fact, the business failure rate in March 2020 for businesses that opened a year earlier (in March 2019) was 21.6 percent -- more than three percentage points higher."

The national five-year closure rate was 49.75 percent, while more than 65 percent of new U.S. businesses reportedly closed within a decade.

The highest first-year business failure rate was reported in Hawaii, with a quarter of businesses folding within their first year. Washington, D.C., Rhode Island and Kansas reported similar statistics to join Missouri in the report's top five areas.

The state of Washington came in with the lowest rate of first-year closures at around 11 percent. Its five- and 10-year business closure rates, however, rocket past the rest of the nation at 60 and 82 percent, respectively.

Washington, D.C., and 31 states have higher first-year closure rates than the national average.

"Businesses can falter for various reasons, including financial constraints, workforce issues and owner burnout," the study read. "Plus, the percentage of businesses that fail can vary widely based on the state or industry."

The report also delves into different industries and their rate of closure over the course of several years. The mining, quarrying and oil and gas extraction sector struggles across the board, with a 25.6 percent business closure rate within a year, 58 percent for five years and 75 percent for a decade. Real estate and rental/ leasing businesses were the most likely to survive the first year in business with a closure rate of 11.6 percent, followed by agriculture and retail at 12.3 percent and 12.4 percent, respectively.

While other industries climbed the ranks as the years wore on, agricultural businesses remained low compared to other sectors, ranking last for both five- and 10-year closures by a wide margin. Agriculture remains Missouri's most prominent industry, per the Missouri Department of Agriculture, making up around 10 percent of the state's jobs.

The most common reason for new firms closing their doors is due to a lack of money, according to the analysis, with around 38 percent of shuttered start-ups citing the obstacle in a CB Insights survey. Another survey from LendingTree cited in the report saw 40 percent of prospective small-business owners pointing to cash flow as their largest barrier to entry.

Other possible issues identified in the survey were the lack of demand for a product or service and stiff competition.

Print Headline: Missouri among states with most new business closures during pandemic


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