Survey Shows High Failure Rate Despite Recovery

The UK economy may owe much of its current strong growth to the success of small businesses, but a new report has shown the failure rate of such companies is around 50 per cent.

Royal Sun Alliance (RSA) has published research for its Growing Pains report that shows 55 per cent of SMEs full first time do not survive five years after starting up, with this situation worsening significantly since the financial crisis began in 2007.

A number of key reasons were identified for this, one of which was a lack of confidence among businesses that they could achieve continued growth over any three-year period. The poll revealed 63 per cent of business owners found it difficult to achieve sustained expansion, with 80 per cent of London-based firms and 75 per cent of those in Scotland having such difficulties.

This issue also affected some sectors significantly more than others, with 80 per cent of commercial and residential landlords having growth problems. Retail was the second worst-hit sector, with 67 per cent finding the going hard.

Furthermore, low lending levels, tax breaks and business rates were listed as major barriers to growth. Tax was cited as a problem by 44 per cent, a lack of lending by 38 per cent and excessive red tape by 36 per cent.

The survey showed that the survival or otherwise of an SME start-up also depended on the sector it was in. Construction fared worst, with only 44 per cent making it to their fifth anniversary. At 56 per cent, the survival rate was also low in healthcare companies.

However, retail companies have done better as consumer spending has risen, with this sector seeing its survival rate increasing over the past decade by 0.2 per cent.

Trading director for the SME sector at RSA David Swigciski said: "The UK is a great place to start a business, but our research reveals that survival rates are low. The recession has had an unsteadying effect on SMEs and we need to work hard to rebuild their confidence."

Expert Opinion

This research has highlighted some of the key concerns which many small businesses face, as well as demonstrating the incredibly difficult conditions that many such companies are operating in. <br/> <br/>"It is vital that the Government reacts to such research to ensure they do everything they can to support their claim that SMEs are the lifeblood of the economy and give them the help they need. <br/> <br/>"These findings also reflect why small businesses need to do what they can to ensure their survival, with proper planning, preparation and advice from third parties such as lawyers often being essential to starting a business on a solid footing." Steven Beahan - Partner