Survival Rates of SMEs
SMEs have a lower survival rate than larger firms
Survival rates are generally perceived to be lower for smaller enterprises. Illustrated in figure 14 is New Zealand data relating to the success of enterprises born in 1995, which supports this presumption. Of all small businesses started up in 1995, 72 percent survived the first year, 57 percent survived the second year, 48 percent the third, 41 percent the fourth, 36 percent the fifth and 31 percent the sixth year into 2001.
Figure 14: Survival Rates of 1995 Enterprise Births
The total number of enterprise births in 1995 by enterprise size were: 0-5: 48970; 6-9: 2010; 10-19: 920; 20-49: 330; 50-99: 60; 100+: 55.
Survival rates for enterprises established in 1995 for each industry sector10 are illustrated in figure 15.
Figure 15: Survival Rates for 1995 Births by ANZSIC
Note: Survival numbers can increase, due to use of random rounding to maintain confidentially.
Industry survival rates generally appear related to the concentration of SMEs
The industries with the highest survival rate into 2001 were government administration and defence and electricity, gas and water supply. These sectors have a proportion of SMEs significantly below the sector average. The lowest survival rates were seen by enterprises in the sectors of accommodation, cafes and restaurants, and communication services. Each of these sectors tends towards having an average sized proportion of SMEs.
In general, survival rates likely overstate the number of firm deaths
However, evidence suggests that these survival statistics present a situation significantly harsher than reality. The statistics are calculated on the basis that if a firm ceases to exist under exactly the same name or structure then it is assumed to have collapsed, presumably due to financial difficulties. These "deaths" can signify other events, such as:
- Geographic transfers (location is changed but activity, means of production and market are not)
- Changes of ownership (there is a new owner but no change in activity or location)
- Temporary closures (such as for seasonal activities)
- Closure due to health or personal reasons.
Research suggests that actual failure rates may be two thirds of rates indicated by statistics.11
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