The survival rate of SMEs has fallen significantly since the recent economic crisis, according to research by insurer the RSA.
In a study entitled “Growing Pains”, the company found that as many as 55% of SMEs won’t survive more than five years.
The report, which examined the current shape of the economy, including barriers to growth for small businesses, found that there was a downward trend in one- to five-year business survival rates since 2004. Though there has been a recent improvement in economic conditions, the survival rate of new businesses is still lower than before the financial crisis.
The construction sector in particular has been hit hard, with five-year survival rates as low as 44%. This is followed by the health sector, at 56%. The retail sector, however, has remained resilient with survival rates actually increasing marginally (up 0.2%).
David Swigciski, SME trading director at RSA 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.”
Aside from survival , businesses also face ovewhelming challenges in achieving growth, with 63% of small businesses admitting that they had faced major difficulties when it came to growing their firm, with the figure rising to 80% in London and the South East, and 75% in Scotland.
In industry sectors, the highest proportion of businesses facing difficulties with growth are commercial and residential landlords (80%), retailers (67%) and personal services, which includes hairdressers, beauty salons and drycleaners (65%).
61% of small business owners said that they lacked confidence in their ability to achieve three-year continued growth, with 69% saying that it seemed especially hard to turn a small company into a medium enterprise. 55% claimed that it had never been more difficult to grow a small business in the UK.
Businesses consider their biggest growth barriers to be the UK tax system (44%), a lack of bank lending (38%), too much red tape (36%), the cost of running a business (36%) and late payments or cash flow (35%).
As many as 33% of SMEs said that they do no believe that the Red Tape Challenge is working, in spite of a reduction in bureaucracy being a priority of the government’s agenda, with 23% stating that they were completely unaware of its existence.
SMEs “wishlists” for achieving growth included greater bank lending (41%), a reduction in employment tax (41%), a reduction in business rates (39%), less red tape (38%) and a reduction in energy costs (35%), all of which are issues that the government claims it is seeking to address.
48% of construction firms said that a reduction in fuel duty would drastically improve their ability to grow, citing the necessity of fuel commodities to their businesses.
Swigciski added:
“The UK economy relies on a balance between start-ups and high-growth businesses, but our research reveals a worrying imbalance and there remain major barriers to achieving growth.
Now is the time for the government to understand what’s reallly holding small businesses back and to ensure that they are coming up with the right incentives to drive growth and give businesses confidence.”
Words: Peter Cribley