Key to Business Longevity: Factors Affecting Company Lifespan
- CreditKernel Team
- Nov 8, 2024
- 3 min read
Longevity in business shows that a company has successfully navigated different economic cycles, built solid relationships with customers and suppliers, secured financing, and gained industry expertise to capitalize on market trends.
Article Topics:
Business Longevity Studies and Findings
Business Longevity Factors
Business Longevity: What the Data Tells Us
The longer a company has been in business, the more likely it is to keep going. Data from the U.S. Bureau of Labor Statistics (BLS) supports this idea.
Since 1994, the BLS has tracked business survival rates, recording how long companies last. The latest data is from 2022, and survival rates vary based on the year a business started. For example, businesses started in 1994 have 28 years of data, while those started in 2020 have only 2 years.
The table below analyzes U.S. Bureau of Labor Statistics survival rates for businesses opening in 1994.
For example, of the 593,387 businesses that opened in 1994, only 81,877 (14.4%) were still active in 2022.
Regardless of the starting year, whether starting in 1994, 2000, or 2015, the pattern of business sustainability is consistent and clear:
Key Survival Statistics:
1 Year: 20% of businesses don’t make it past year one.
5 Years: 50% don’t survive beyond five years.
10 Years: 75% don’t make it to ten years.
20 Years: 80% are out of business within two decades.
In 2022 alone, more than 1 million businesses opened, but based on trends, over 500,000 won’t survive past 2027.
These numbers highlight how difficult it is to maintain long-term success. At CreditKernel, we use business longevity data as a key risk factor in our credit rating methodology.
Factors Affecting Business Longevity
A longer time in business often reflects positively in credit assessments, but it’s not the only factor. In today’s fast-changing world, companies must adapt to new regulations, emerging markets, and evolving customer needs to stay relevant and competitive.
Here are some key factors that impact longevity:
Experience and Expertise: Companies with more years in business have a track record of leveraging market trends and managing risks.
Adaptability: Long-standing businesses have navigated different economic conditions and adapted to changes in consumer behavior and market demands.
Customer Trust: Companies with proven reliability and consistent quality earn customer loyalty and repeat business.
Access to Capital: Strong financial health makes it easier to secure funding for growth and provides a cushion during tough times.
Final Thoughts
How long a company has been around can be a strong indicator of its performance, reputation, and competitiveness. Including BLS business longevity data in credit assessments makes risk evaluations more accurate. Companies that exceed the average lifespan tend to prioritize customer understanding, maintain strong supplier relationships, stay on top of trends, and embrace continuous improvement.
Schedule a live demo to see how our credit risk model incorporates the fundamental risk concept of years in business.
Frequently Asked Questions
How long does the average business last?
The average lifespan of a company is less than 5 years, as 50% of businesses do not survive beyond 5 years.
Does business longevity guarantee credit approval?
It is a highly researched quantitative measure, but the longevity of a business is not a
sole indicator of credit quality or approval. Additional credit analysis factors including
industry risk, financial ratio analysis, and liquidity assessment should also be considered
to develop a well rounded credit assessment.
Can a startup business still get favorable credit terms?
Startup businesses are usually considered higher risk due to their limited operating history. However, a well-defined business plan, practical financial projections, and experienced management team can mitigate the perception of higher risk.
