Business Births and deaths – a mixed tale for the UK economy

Business Births and deaths – a mixed tale for the UK economy

The latest statistics from the ONS make interesting reading, especially in the area of insolvencies. These are born out by our own company liquidation business research

Looking at the headline figures it seems that the UK business economy is in rude health with more businesses being formed this year than at any point since records began however delving beneath the headlines reveals a mixed bag.

Certainly with more than 350,000 businesses being formed in 2014 the figures look good. But the rate of increase in company formations has slowed markedly. In 2013 there was a 28% increase in formations over 2012 whilst the 2014 increase is a mere 1.2%. Although London appears to be in good shape showing an uplift of 6% some regions actually formed fewer businesses than in 2013 with Scotland, The North and the South West all slipping back.

Businesses can be formed for a variety of reasons and it’s true to say that they aren’t necessarily going to trade from day 1. The ‘Active business’ statistics show that the UK boasts some 2.55m working enterprises, an increase of 4.2% over last year. What is striking is that although most of the UK appears to be heading out of the dark days of recession, Northern Ireland has had less active businesses every year since 2010.

Formations perhaps show a sense of optimism in the business community but the acid test of the health of the firms is how many manage to survive. The five year survival rate is a good indicator of whether the UK and its regions have sustainable business environments.

Continuing the mixed picture; although formations are up so are company ‘deaths’. This includes liquidations and dissolutions whether they be voluntary or compulsory. Overall, a business formed in 2010 has a 41.7% chance of survival. Although some will have been acquired and merged, most of the loss will be down to failure and subsequent liquidation.

London leads the way again with an increase in the amount of companies going out of business of 7.8%, worryingly this is higher than the London formation rate increase. The 5 year survival rate does throw up some surprises. Where London has consistently shown the highest formation rate, it also has the highest failure rate with only 38.6% of firms formed five years ago making it to the end of 2014.

As we have seen the South West forms fewer businesses but they appear to be more robust and the region tops the tables with an impressive 45% of companies making it to the 5 year mark. The sustainability of firms in the South West is notable indeed.

Although some of the figures look good it is a sobering thought that across the UK the majority of businesses don’t make it to 5 years and in the capital 12% don’t even last 12 months so it’s an important message for business owners to take on board.

In the area of business closedowns the vast majority of cases show that creditor or compulsory action was the cause with 13113 falling into this category. Understandably very few of the business that ceased trading did so voluntarily.

Splitting the figures down into their activity types provides more food for thought.

Looking at the numbers of companies formed during 2014 proves how the UK economy has moved towards services with the top 30 formation classification all being in service, retail or construction services such as plumbers and electricians.

In fact the first ‘traditional’ manufacturing classification formed 2070 companies, less than half the number of Motion Picture and TV businesses formed.

Formations are heavily weighted towards Administration, Consultancy and Computer Programming with around 150,000 firms starting life in the area of professional services.

Again it is helpful to see how many of these companies have survived to the five year mark and we can see that Health and Education are the clear winners here with a small majority (51%) of firms formed in 2009 making it to the end of 2014. Worst performers here are in transport, accommodation and business support services with only just over a third getting the same mark.

In summary, the UK economy has been showing a clear upturn in company formations over the past couple of years however from a look at the figures behind the headlines we can see that this appears to be somewhat fragile both by activity type and region. The most likely firm to survive to the five year mark will be in health or education and located in the South West. Companies facing the hardest journey are those located in the Capital and that are working in Transportation.

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