The majority (55 per cent) of small and medium-sized enterprises (SMEs) don’t survive more than five years, according to new research from insurer RSA.
According to the company’s study Growing Pains, which examines the current shape of the economy and barriers to growth for SMEs, there is a downward trend in one to five-year business survival rates since 2004. Despite a recent improvement in economic conditions, survival rates remain lower than before the financial crisis.
The construction sector has been the hardest hit, with five-year survival rates falling to just 44 per cent. This is closely followed by the health sector, whose five-year survival outlook fell to just over half (56 per cent). The retail sector remained resilient throughout this period, with its rate increasing by 0.2 percentage points.
David Swigciski, SME trading director at RSA says, ‘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.’
Beyond survival, businesses also face considerable challenges in achieving growth. Two thirds (63 per cent) of small business owners admit that it is difficult to grow their firm.
This rises to four fifths (80 per cent) in London and the South East, and three quarters (75 per cent) in Scotland.
Looking at industry sectors, the highest proportion of businesses finding it difficult to grow are commercial and residential landlords (80 per cent), retailers (67 per cent) and personal services (65 per cent), including hairdressers, beauty salons and drycleaners.
Three fifths (61 per cent) of small business owners also lack confidence in their ability to achieve three-year continued growth. Worryingly, two thirds also (69 per cent) believe it is hard to turn a small company into a medium-sized enterprise, and more than half (55 per cent) saying it has never been more difficult to grow a small business in the UK.
When asked about their biggest growth barriers, the UK tax system is the most cited concern (44 per cent), closely followed by a lack of bank lending (38 per cent), too much red tape (36 per cent), the cost of running a business (36 per cent) and late payments or cash flow (35 per cent).
Despite reducing bureaucracy being high on the government’s agenda, a third (33 per cent) of small businesses do not believe its Red Tape Challenge is working, and a quarter (23 per cent) do not even know it exists.
Small businesses’ wish lists for achieving growth include greater bank lending (41 per cent), reduced employment tax (41 per cent), reduced business rates (39 per cent), less red tape (38 per cent) and reduced energy costs (35 per cent), all of which the government is seeking to address.
When it comes to fuel duty, almost half (48 per cent) of small construction companies said that a reduction would significantly improve their ability to grow, given how vital a commodity this is to their business.
Swigciski adds, ‘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 really holding small businesses back and to ensure that they are coming up with the right incentives to drive growth and give businesses confidence.’