Four in ten small firms fail to see out five years of trading
Just four in ten small businesses will still be trading five years after launch, with cash flow management a major factor in their decline, according to new research.
An Ormsby Street analysis of Office for National Statistics data found that survival rates are as high as 91% after one year, but that a swift decline occurs in the period thereafter.
Communication and information based businesses and retail firms were most likely to have the highest survival rates after one year, while those in the health and education sectors tend to fare best after a five year period.
The latter were the only two sectors where more than half of small businesses that were launched were still trading five years later.
Ormsby Street is the financial technology firm behind CreditHQ and has focused on rates of business survival across the UK economy.
The firm highlights the need to be aware of the challenges they may face and to be aware of how tough their sector might be to survive in.
As the number of start-up businesses in the UK also increases, it would appear likely that more will also face insolvency unless they can mitigate the risks they face.
Property-based businesses were found to be the ones most likely to fail after just one year, although if they could survive that period they were well-placed to survive five years too.
Food services and accommodation, and business administration were found to be the types of business that were most likely to fail in the long term – both sectors filled the bottom two places after three, four and five years of trading.
The study revealed that poor cash flow was one of the major causes of problems for companies, and was often exacerbated by the late payment of invoices in particular.
According to the data, UK small businesses that regularly credit check were 30% more likely to continue trading when compared to those do not.
By Phil Smith