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, supporting this presumption. Of all small businesses started up in 1995, 71 percent survived into 1996, 56 percent survived into 1997, 47 percent survived into 1998, and 40 percent the fourth year into 1999. These results are unfortunately not comparable to data collected for 1988 births due to a change in the population surveyed by Statistics New Zealand.
Figure 14
The total number of enterprise births in 1995 by enterprise size were: 0-5: 48967; 6-9: 2008; 10-19: 920; 20-49: 329; 50-99: 60; 100+: 53.
Survival rates for enterprises established in 1995 for each industry sector are illustrated in figure 15.
Figure 158
Industry survival rates generally appear related to the concentration of SMEs
The industries with the highest survival rate into 1999 were: electricity, gas and water supply; finance and insurance; and government administration and defence. With the exception of finance and insurance, these sectors have a proportion of SMEs significantly below average. The lowest survival rates were shown by enterprises in the sectors: accommodation, cafes and restaurants; communication services; and cultural and recreational 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. However, 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.
- suggests that actual failure rates may be two thirds of rates indicated by statistics.9
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