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, 71 percent survived the first year, 56 percent survived the second year, 47 percent the third, 40 percent the fourth year, and 35 percent the fifth year into 2000.
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 sector5 are illustrated in figure 14.
Figure 15. Survival Rates for 1995 Births by ANZSIC
Industry survival rates generally appear related to the concentration of SMEs
The industries with the highest survival rate into 2000 were electricity, gas and water supply and government administration and defence. 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 has a proportion of SMEs higher than average.
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.6
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