The DC region consistently ranks as one of the top cities for entrepreneurs and startups, but it also has a high failure rate for new businesses.
The DC region consistently ranks as one of the top cities for entrepreneurs and startups, but it also has a high failure rate for new businesses.
According to a LendingTree study, the first-year failure rate for startups in Washington, DC is 32.2%, well above the national average of 23.2%, based on the most recent data from the U.S. Bureau of Labor Statistics.
After five years, DC's failure rate rises to 58.1%. Compared to states, DC has the highest new business failure rate in the country.
In DC, roughly 71% of startups fail within 10 years.
The high cost of living in Washington DC is leading to startup failures.
“For example, if you're starting a brick-and-mortar business, you'll have high start-up costs and your costs could skyrocket in the first year as you work your way to profitability,” said Matt Schultz, principal credit analyst at LendingTree.
Many entrepreneurs who start businesses don’t have the overhead of a brick-and-mortar store, such as e-commerce businesses, consulting, accounting, etc. One of the main reasons new businesses fail is aspiring entrepreneurs who think they have a great idea but don’t have a good plan.
“Business owners often fail from the start because they don't do their research and plan wisely,” Schultz says. “Taking the time to plan is invaluable.”
Every startup needs to raise capital, whether that be through self-financing, backers, or bank loans. No matter how good your idea is, if the entrepreneur isn’t in good financial shape, the financial health of your new business will be unstable.
“There are few things in life that are more costly than having bad credit, and it can make a big difference when you're starting a business and trying to get capital,” Schultz said.
Even with a strong business plan, access to adequate capital, and a skill or service in demand, startups fail. Sometimes it's simply bad luck, a bad location for a brick-and-mortar business, or bad timing.
LendingTree's state-by-state analysis of new business failures, along with tips to improve your startup's chances of success, is available online.
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