976,000 Businesses Closed Last Year... Owners Choose Employment Over Re-Startup Amid Sluggish Sales (Comprehensive)

Decrease from over 1 million in 2024, "Active fiscal measures had an impact"

Closure rate at 8.64%, highest in retail and food and beverage sectors

Declining profitability and sluggish sales... Fewer customers, rising costs

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Last year, the number of business closures reached 976,000. In particular, these closures were heavily concentrated in six major sectors where small business owners are active, such as retail and food service. There was an increase in “involuntary closures,” with owners unable to withstand deteriorating profitability and sluggish sales.

On June 30, the Ministry of SMEs and Startups announced the results of an analysis of the National Tax Service's data on closed businesses and a survey conducted with 1,500 small business owners who had shut down their businesses. The number of business closures was 976,000, a decrease of 32,000 compared to the previous year’s record high of 1,008,000. The closure rate stood at 8.64%, down by 0.40 percentage points from the previous year.

Choi Wonyoung, Director of the Small Business Policy Office at the Ministry of SMEs and Startups, explained, “We believe that the government’s active fiscal policies, including the issuance of consumption coupons and local gift certificates through a supplementary budget last year, as well as domestic demand-boosting events such as the Korea Grand Festival and Donghaeng Festival, along with measures like management stability vouchers and easing of repayment burdens, contributed to the decrease in closures.”

Closure Rate Among Key Small Business Sectors at 11%... Retail Sector Tops the List

In the six major sectors for small businesses (manufacturing, wholesale, retail, food service, lodging, and service), 751,000 businesses closed, accounting for 76.94% of all closures. The closure rate for these sectors was 11.08%, significantly higher than the overall average. However, the closure statistics are based on the number of “businesses,” including those closed due to transfers or assignments, so the actual number of self-employed individuals who closed their businesses is somewhat lower.

Sectors with high closure rates included retail (15.40%), food service (15.14%), and agency, brokerage, and contracting (12.20%). The closure rate for retail was particularly high due to the inclusion of online retail businesses that operate without a physical store.

The proportion of owners who chose to close their businesses due to deteriorating profitability has been rising every year. The main reasons for closure were business downturn (492,000), other reasons (436,000), and transfer or assignment (35,000). The share of “business downturn” as a reason for closure was 50.4%, up from 48.9% two years ago and 50.2% last year. In the retail sector specifically, “business downturn” accounted for 60.3% of the reasons for closure.

Even businesses with an established foundation could not overcome management difficulties and chose to close. The proportion of closures among businesses operating for 3 to 10 years rose to 35.5% from 33.3% the previous year, while the share among those operating for less than three years decreased to 50.9% from 54.5% last year. By age group, the proportion of owners aged 60 or older who closed their businesses rose to 24.4% from 22.3% two years ago. Among the six major sectors, the closure rate for young small business owners was 33.3%, higher than the overall average of 28.7%.

The Ministry of SMEs and Startups announced on the 30th the analysis results of the National Tax Service’s status of closed businesses and the findings from a survey conducted on 1,500 closed small business owners. Choi Wonyoung, Director of the Small Business Policy Office, is giving a briefing. Ministry of SMEs and Startups

Top Reason for Small Business Closures: “Deteriorating Profitability”... Owners Decide to Close When Sales Fall by 40%

Small business owners who closed experienced multiple hardships, including shrinking domestic demand and rising costs. According to a survey of 1,500 small business owners who had closed their businesses, 70.9% cited “deteriorating profitability and poor sales” as their reason for closure. Poor profitability and sales were largely due to weak domestic demand. The factors behind poor sales included a decrease in customers (62.5%), increased raw material costs due to rising prices (29.4%), rising labor costs (28.8%), and rising fixed costs (24.9%), all contributing in combination.

The majority of business owners decided to close their businesses when sales had dropped by 40% or more. The level of sales decline at the time of this decision was: a 40-60% decrease (39.1%), a 60-80% decrease (13.1%), and an 80% or more decrease (12.2%).

The greatest difficulties during the closure process were loan repayments (45.5%), deciding the timing of closure (37.3%), and recovering deposits and goodwill payments (30.7%). After closure, most relied on their own assets (33.8%) for living expenses, followed by wage income (32.8%) and support from family or acquaintances (23.9%).

On average, it took 7.7 months from deciding to close to actually shutting down the business. This period was spent searching for a new acquirer (30.6%), understanding the closure process (26.1%), dealing with the remaining lease period (20.3%), and repaying loans (18.8%).

Among small business owners who decided to close, 68.5% had outstanding debt, with the average debt amounting to 85.31 million won. The average cost of closure was 12.86 million won, with store clearance expenses (5.59 million won) accounting for the largest portion. Small business owners indicated that support for closure costs, as well as assistance with re-startup and employment, is needed.

After Closure, “Employment” Is Preferred Over Re-Starting a Business

After closing their businesses, more owners chose “employment” (41.4%) for a stable life than starting a new business (26.9%). The Ministry of SMEs and Startups is providing customized training and a job transition incentive of 1 million won for those who choose employment after closure.

A ministry official commented, “Reemployment training focuses mainly on basic and psychological education, but many participants still hope to start a new business. The lack of companies willing to hire is an obstacle, and we are also considering introducing incentives for companies that hire former business owners.”

The Ministry of SMEs and Startups supports business closure through the “Hope Return Package,” which provides assistance such as store demolition costs, business closure consulting, and legal advice. Last year, the ministry raised the support limit for store demolition to 6 million won (200,000 won per 3.3 square meters). In addition, up to 20 million won in business revitalization funds and expert mentoring are provided to those starting new businesses after closure.

The ministry is conducting joint research with the Ministry of Data and Statistics on post-closure pathways, such as employment and re-startup, and plans to announce the findings in September. Starting next year, comprehensive statistics combining National Tax Service data, ministry surveys, and post-closure pathway data will be regularly released in early July each year.

Choi Wonyoung, Director of the Small Business Policy Office, explained, “There are cases where owners hold out until sales have dropped by more than 80% before closing, but even after closure, anxiety about employment or re-startup means they cannot be certain about the future, leading to delays in closure decisions. It is important to minimize this period. We have requested an increased budget for the Hope Return Package next year, and in cooperation with local governments, supporting small business owners with expert advice so they do not miss the right timing should be a key policy framework.”

This content was produced with the assistance of AI translation services.