Most New Firms Fail Within 5 Years

Most New First Fail Within 5 Years

The latest figures at Companies House indicate that despite an uplift in the one year survival rate for new firms, the majority still fail to survive beyond five years.

Barriers to growth prevent small firms from benefiting from economies of scale, with 80% of SMEs in London and the South East reporting difficulties in growing their business.

A recent study by RSA Group, a global commercial insurer, reports that one of the most significant barriers to growth, according to SME owners, is the lack of availability of bank funding. With 50% of SMEs making their first application for funding being rejected despite the Government’s flagship Funding for Lending scheme being extended to 31 January 2015, it is clear that small businesses are still struggling to obtain the affordable finance they need to prosper and grow.

Perhaps unsurprisingly, the biggest factor hampering growth in the sector, as reported by SME owners and managers, was the UK tax system, and in particular the level of employment taxes which represent a significant burden on smaller firms trying to grow in the current market.

The recession has had an unsteadying effect on SMEs, which form the heart of the British economy and create and sustain the largest number of jobs in the private sector. Ministers recognise the need to rebuild confidence in the sector, but small businesses’ top ‘wish lists’ for achieving growth suggest that not enough is being done, despite the Government’s efforts to address each of these concerns:

The RSA Group study showed the following 5 factors topping the wish list for small firms:-

  1. Increase bank lending;
  2. Reduce employment taxes;
  3. Lower business rates;
  4. Reduce red tape; &
  5. Reduce energy costs.

 

Are there any signs of improvement for small firms?

Although there is a worrying downward trend in the five year survival rate, there has been a noticeable uplift in the one year survival rate, with only 7% of firms set up in 2011 failing in their first year, down from 13% the previous year.

Clearly, whilst there are promising signs for SMEs as the economy continues to recover, significant challenges still remain, and the Government needs to maintain its focus on the sector in order to meet these challenges and address their needs at every stage of the business life cycle.

 

For the top 10 reasons for CVA’s to fail (and the solutions) see here  CVA FAILURES – Causes & Solutions

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