Australia is a nation of entrepreneurs, with one actively trading business for every 10 people. But small businesses are growing more than three times slower than the economy and almost 40% have collapsed in the last four years.
That’s the message from a fascinating study by McCrindle Research, which has examined ABS data on business starts and failures to drill into which types of businesses have the best survival rates, where they are located and what industries they are in.
In many ways, it’s not a comforting picture.
Of all the new businesses started four years ago, a staggering 51.4% are no longer operating.
Of the more than two million businesses operating in Australia four years ago, 39.6% no longer exist.
And small businesses haven’t exactly been on top of the world when it comes to growth. While GDP has grown 9.6% over the past four years and the population has grown 6.9%, the accumulated business growth of small firms over the period has been just 2.9%.
The head of McCrindle Research, Mark McCrindle, says the data underlines how difficult the last few years have been for the small business community.
“We’ve heard for some time that the majority of businesses don’t survive the first five years, and this data backs that up. But what was shocking was the figures about the firms that have been around for a few years. There are two in five falling over every four years – and these are the established businesses.
“We need to keep in mind that this is part of the process of business. Some businesses die, others start, some are sold, some are started as businesses to get a person through university and then they get a full-time job. Not every business is supposed to last forever, although two in five shutting is high.”
McCrindle says there is likely to be further pain ahead. While 20% of businesses sought a business loan or equity in the last year, the vast majority – 75% – used this loan to cover short-term cashflow problems or shore up their survival.
“I think that a few years into the global downturn it is really hitting the small business sector that is the backbone of the economy.”
So what are the keys to beating the worryingly low survival rates? Here are five key traits unearthed by McCrindle’s research.
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
