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BFS Capital Blog

The Best and Worst Industries for Small Business

August 28, 2016

Entrepreneurs and business owners know the reality from the start: Many businesses just won’t make it in the long haul. In fact, experts say that as many as half of small businesses fail within their first five years of launching.

The reasons are all over the place, from economic conditions to lack of capital to mistakes made in the process. But there’s also another significant factor; some industries are more hospitable to small businesses’ survival and growth and others are just riskier. They may be fiercely competitive or carry consistently higher expenses. So while nothing is certain, it’s helpful to know, going in, which industries are more favorable to small business.

Knowing which industries have higher rates of failure should also help you in other ways. Typically, small businesses in riskier sectors have difficulty getting access to capital when they need it. Traditional lenders—banks, in particular—shy away from certain types of businesses—those in sectors with higher rates of failure or that don’t have a lot of tangible assets as collateral, for instance. But virtually all businesses need working capital at some point. If you’re in higher-risk type of business, planning ahead by researching other sources of capital will be a big plus when you actually need it.

This is where so-called “alternative” sources of funding come in—like us, BFS Capital. At BFS, we understand that certain types of businesses, like restaurants, for example, carry more risk than others. But we don’t count you out because of that. Instead, we analyze your business model and talk to you, get to know you. We’ll make our decision on your growth potential overall, not the sector you operate in. That’s why our small and medium-sized customers span a wide spectrum of industries all across the U.S.

That’s not to say you also shouldn’t know everything you possibly can about various kinds of businesses and their statistical likelihood of succeeding or failing. Of course, there’s something to that. In doing your research, be aware that there are trends that come and go, as well as multiple interpretations based on different kinds of data. Drawing on information from several resources, including EHow, Inc. and Small Biz Trends, writer Rochelle Bailis provides one interpretation in The Best and Worst Industries for Starting a Business – What the Numbers Show. Check out a few of the highlights:

    • In the “most likely to succeed” category are mobile games, internet publishing and (believe it or not) residential construction. Each of these sectors reflects changes in the way we live and play and consume information today as opposed to how we did just a few short years ago.
    • Not far behind are things like artisanal alcohol and beers, pet care and environmental consulting. Again, you can clearly see our evolving tastes, habits and priorities reflected in these categories.
    • Topping the “high rates of failure” list are mom-and-pop restaurants (50 percent) direct sales businesses (40 percent) and independent retail stores (40 percent). As with success, failure is also influenced by things like rising costs and consumers’ changing preferences and habits.

If your passion is opening an independent restaurant or store, we’d never tell you to give up. Just be sure to do your homework and plan carefully.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net