Hierarchy of Buyer Risk: Which Businesses Are Most Likely to Succeed?

Understanding the Five-Year Survival Rates for Different Types of Business Acquisitions versus Startups.

When evaluating the purchase of a business, one of the most critical considerations is this:

What are the chances the business will still be operating in five years?

While every investment carries some level of risk, certain types of businesses statistically offer stronger long-term stability than others.  Understanding how different business models perform over time can help buyers make more informed decisions aligned with their risk tolerance and goals.  

Five-Year Business Survival Rates

Recent industry data highlights the following success rates over a five-year period:

·      97% -- National Franchise (Existing Business with 3-5 Years of Proven Cash Flow)

·      92%--National Franchise (New Startup Location)

·      85%--Independent Business with 3-5 Years of Proven Cash Flow

·      20-25%--Independent Startup Business

What these Numbers Indicate

National Franchise Location with Operating History (97%)

This category reflects businesses that are a part of a national brand and have a local track record of profitability.  The high success rate may be attributed to established systems, recognizable branding, ongoing franchise support, and predictable financial performance.

New National Franchise Location (92%)

Even new locations of established franchises tend to perform well.  While these ventures do not have local financial history, they often benefit from operational training, corporate resources, and brand recognition.  

Independent Business with Proven Cash Flow (85%)

Independent businesses that have been operating profitably for several years can offer strong value.   Though they don’t provide the structure or support of a fanchise, their survival rate remains relatively high, especially when supported by verifiable financial and stable operations.  

Independent Startup Business (20-25%)

Startups without an existing revenue stream or business model carry the highest level of risk.  Limited market validation, no operating history, and the need to build systems from scratch contribute to a significantly lower likelihood of long-term success.  

Bottom Line

These statistics do not guarantee outcomes but do offer insight into the relative stability of various business types.  Buyers should weight not just the potential reward of a business, but also its position within this “hierarchy of risk.”

Proper due diligence, industry knowledge, and a clear understanding of one’s own risk tolerance are essential when considering any business acquisition.