- 20% of new businesses in the UK do not make it past the first year.
- 60% of new businesses will fail within the first 3 years.
- Only 33% of small businesses reach the 10-year mark.
- In 2020, the business birth rate was 11.9% and the death rate 10.5%.
UK Business Death Rate
- In 2020, almost 11% of UK businesses (316,310) stopped trading.
- 47% of SMEs reduced operations, while 31% temporarily closed down completely in 2020.
- 20% of small businesses in the UK fail in their first year, and 60% fail within the first three years.
- London had the highest business death rate in 2020 at 12.1%, followed by the West Midlands at 11.9% and the North West at 10.6%.
- The transport and storage industry had the highest business death rate in 2020 at 14.7%, followed by business administration and support services at 14.1%, and the information and communication industry at 12.8%.
- The top causes of start-up failures are running out of cash or failing to raise new capital (38%), lack of market need (35%), being outcompeted (20%), flawed business model (19%), regulatory or legal changes (18%), pricing or cost issues (15%), not having the right team (14%), mistiming the product (10%), poor product (8%), disharmony among team or investors (7%), failed pivot (6%), burning out or lack of passion (5%).
Failure Rate of Small Businesses
- By the end of the second year, 30% of businesses will have failed.
- During the 21/22 tax year, 810,316 new businesses were formed.
- Approximately half of businesses fail in the first 5 years.
- Only 30% of businesses remain after a decade, resulting in a 70% failure rate.
- There are valid reasons for a business no longer existing, such as retirement.
- The failure rate can vary between 15% and 25% in a single year.
- Major events, like the Covid-19 pandemic, can significantly impact the failure rate.
- Failure rates differ across industries, with healthcare businesses having a lower rate and warehousing and transportation businesses having a higher rate.
- Some businesses may not be counted in the metrics due to reporting errors.
- Businesses can continue to exist even when not performing optimally.
- Only 1 of 5 of businesses fail within the first year, while 50% fail within the first five years.
- Around 12.5% of businesses in the first year fail due to lack of preparation.
- Overestimating the failure rate of small businesses is common.
- About 50% of small businesses have a chance of surviving past year 5.
UK Small Business Trends
- The number of small businesses in the UK has decreased by 6.6%, from 5.9 million to 5.5 million.
- SMEs still make up 99.9% of the UK’s business population.
- On average, 56% of SMEs have sought external finance.
- Nearly all (91%) midsize company leaders are facing challenges due to inflation.
- 45% of small business leaders consider inflation a top challenge for the year ahead, up from 20% last year.
- Small business employment is at 12.9 million (48%) with a turnover of £1.6 trillion (36%).
- 4.2 million small businesses have no employees, while 1.4 million have employees.
- In the private sector, SMEs account for 61% of employment and over half of the turnover at £2.3 trillion (52%).
- There was a 23% increase in the number of business failures compared to the previous year.
- 46% of businesses in the UK are limited companies with one employee.
- Companies and public corporations now represent 74.3% of total UK businesses.
- 64% of UK SMEs believe that Brexit has negatively impacted the UK economy.
- 51% of startup owners do not consider Brexit an obstacle.
- In the US, there were 32.5 million small businesses in 2021, a growth of 9.8% over four years.
Reasons Why UK Startups Fail
- 47% of startup failures in 2022 were due to a lack of financing, nearly twice as many compared to 2021.
- 44% of failures happened because of running out of cash.
- Investments in North American startups dropped by 63% in 2022 (reason: potential recession).
- The Covid-19 pandemic caused 33% of startup failures in 2022, a decrease from 59% in the previous year.
- 58% of founders wished they had conducted more market research before launching their businesses.
- The same percentage of founders regretted not having a stronger business plan.
- 79% of surveyed founders advised aspiring entrepreneurs to “learn from your mistakes”.
- 40% of founders had pivoted their startups in some way to avoid failure, and 75% believed it contributed to their success.
- Failure to pivot is a major reason why startups fail.
- In 2021, there were 5.4 million new businesses started in the UK.
- About half of all businesses fail within the first five years, and only 35% make it past 10 years.
- Many businesses fail because owners lack knowledge in company management and don’t seek help from experienced individuals.
- Failure to understand payroll, liability insurance, and proper employee payment can lead to legal and financial consequences for business owners.
- Opening a business in a location where a previous business failed often results in repeated failures.
- Businesses fail when owners don’t have a good understanding of cost structures and fail to keep track of their financial numbers.
UK SME Trends
- 65% of failed SMEs blame cash flow problems for their failure.
- 42% of startups fail because of a lack of market demand.
- 39% of UK businesses struggle with scaling up.
- 92% of consumers trust recommendations from individuals more than brands.
- 89% of the UK population is active online.
- Participating in local events and online forums can boost brand visibility.
- Collaborating with other businesses can increase brand exposure.
- Exceptional customer service helps differentiate SMEs and foster loyalty.
This report highlights the high failure rates of new businesses in the UK. 20% of new businesses do not make it past their first year, while 60% fail within the first three years. Additionally, only 33% of small businesses reach the 10-year mark.
We’ve also highlighted the factors contributing to business failures, such as running out of cash, lack of market need, and being outcompeted.
The report sheds light on the impact of major events like the Covid-19 pandemic on the failure rate. It is evident that failure rates vary across industries, with healthcare businesses having a lower rate and warehousing and transportation businesses having a higher rate.
Despite these challenges, SMEs still make up a significant portion of the UK’s business population, and there are opportunities for success through strategies such as seeking external finance, conducting market research, and pivoting when necessary.