Survival rates for new businesses drop

Posted by admin on August 24, 2016

business-841174__180.jpgJust four in ten new UK businesses make it to the age of five, despite 91 per cent making through the all-important first year of trading, new analysis has shown.

A key factor that sees businesses across all industries falter is a failure to conduct regular credit checks, leading to vast amounts of debt being written off, data collected by Ormsby Street has found.

Data collected by Ormsby Street found small businesses that conduct regular credit checks have a 30 per cent greater chance of survival in the first 12 months than those that don’t.

Advising small firms of the dangers of poor credit management, Ormsby Street managing director Martin Campbell said: “Poor cash-flow is mostly caused by late payment of invoices and this is certainly something that can be addressed by any small business.

“Measures include being strict and upfront about payment terms initially and using the right tools to provide insight into how they should trade with customers and what action to take to reduce risk of non-payment.”

Outstanding debt accounts for large losses for small businesses in Britain. According to a new Direct Line for Business study, 82 per cent of SMEs are owed outstanding debts from customers, with a combined £5.8bn written off in the last financial year.

Indeed, 19 per cent of small businesses in Britain wrote off an average of £31,330, with almost one in ten claiming to have lost written off debt in excess of £100,000.

While there are measures that businesses can take to counteract this loss, a recent study from the Asset Based Finance Association (ABFA) revealed that micro businesses are hit disproportionately by late payments, with invoices being paid up to six weeks later than larger firms.

The Ormsby Street study also revealed a disparity in the success rates of different industries, with new businesses in the health and education sectors more likely to survive in the long-term. The data showed that after the first five years, these are the only two sectors in which more than half of new businesses survive.

In terms of the industries in which startups are least likely to survive beyond the first year, accommodation and food service companies, such as hotels, restaurants and cafes, top the list.