Small Businesses Run by Older Founders Most Likely to Survive

Small businesses with founders who are 55 and older don’t go under as often as companies started by younger people. That may be due to the older entrepreneurs’ more conservative approach to managing their cash, according to a new study by JPMorgan Chase Institute.

The study is based on data from 138,000 businesses with fewer than 500 employees. About a third of those small companies — including 14 percent of start-ups — are owned by people 55 and older. 

Firms with older owners are more likely to stick around. In the first year, a 60-year-old entrepreneur’s company has an 8.2 percent probability of going out of business, compared with an 11.1 percent chance for a 30-year-old founder and a 9.6 percent risk for a 45-year-old. The gap decreases over a three-year period but remains statistically significant.

“Young people under the age of 35 start about one-third of new firms, but their businesses tend to exit more quickly than small businesses with older owners,” a report on the study says. 

The report also says that older entrepreneurs are better at cash management, a key factor in business survival. Firms with age 55-plus owners typically have a capacity of 17 “cash buffer days” — that is, days in which the company could cover its expenses if it didn’t take in any revenue — compared with 12 days for founders 35 and younger, and 13 days for those between 35 and 54.

Firms with older owners make up the biggest share of small companies in the metal and machinery sector (47 percent), and they comprise 43 percent of those in high-tech manufacturing, 41 percent in real estate and 40 percent in health care services. Younger business owners were more concentrated in personal services, retail and restaurant fields.