Businesses are born and businesses die every day. Unfortunately, the death rate is increasing and now exceeds the birth rate. This has obviously been caused by the change in the economy. Unfortunately, with small businesses being so vital to the economy, it is also a cause for the continued recession! It’s a vicious cycle, but one that can be stopped…
In The E-Myth Revisited (Michael Gerber) published in 1995, Michael Gerber reported that 80% of businesses fail in the first 5 years of trading, and that 80% of those that survive the first five years don’t make it past their 10th birthday. Meaning only 4% of new businesses will celebrate their 10th anniversary.
The Office of National Statistics in the UK publish statistics on the “births and deaths” of UK businesses every year. The key statistics from this report are:
The number of business closing their doors rose by 20,000 (7.4 per cent) to 297,000 for the year between 2009 and 2010
The number of businesses started remained broadly flat with a small decrease of 1,000 (0.4 per cent)
For the second consecutive year businesses that stopped trading outnumbered those that started resulting in a 1.8% drop in the number of active businesses
The data also provides information on the survival rates of businesses.
From this we can see that around 40% of all businesses started in 2005 were still trading in 2010. Somewhat higher than the 20% suggested in the E-Myth.
While there is no data for 10 year survival, modelling the data you can predict that 17% of businesses started in 2005 should see their 10th birthday.
However, the numbers also suggest a decline in survival rates since 2008 as you might expect given the economic conditions. As a result, the average life expectancy for a new business has dropped from 5 years for businesses opened in 2005 to a predicted 4 years for businesses started in 2010.
Infographic created by Clover, a merchant services company.