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Less than half of SMEs make it to fifth birthday

2 min read

17 November 2014

Small and medium-sized businesses in the UK have a worse survival rate than before the recession.

The majority of small and medium sized enterprises (SME) don’t survive their first five years, according to new research from commercial insurer RSA.

It found 55 per cent do not make it to their fifth birthday, and survival rates remain lower than before the financial crisis despite the recent improvement in economic conditions.

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.”

The construction sector has been the hardest hit with five-year survival rates falling to 44 per cent. This is closely followed by the health sector, whose five-year survival outlook fell to 56 per cent. However, the retail sector remained resilient throughout this period, with its survival rate increasing by 0.2 percentage points.

The survey found the UK’s tax system, a lack of bank lending, red tape, the cost of running a business and late payments or cash flow were the biggest barriers to SME growth cited by the country’s entrepreneurs. Two-thirds of small business owners said that it is difficult to grow their firm and that increased to four-fifths in the London and the South East region. 

It is difficult for small businesses to overcome these barriers to growth. Three-fifths of small business owners lack confidence in their ability to achieve continued growth over a three year period, according to RSA’s survey, and two-thirds believe it is hard to turn a small company into a medium-sized enterprise.

“The UK economy relies on a balance between startups 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,” said Swigciski.