Not all new businesses formed in the UK succeed – an unfortunate truth – although small businesses can improve their chance of survival with a solid strategy, financing options and a competitive business bank account. We look at business survival rates, how it varies between industries and some of the reasons businesses stop trading.
The latest official figures show that 1 in 14 new businesses (7%) formed in 2021 failed within the first year. This is up slightly from 2019 when only 1 in 20 (5%) of UK businesses formed failed within the first year.
Around 3 in 5 new UK businesses (60%) fail within the first 5 years according to government figures, meaning it is more likely for a business to fail in 5 years than to succeed. In fact, more than half of new businesses (54%) will have failed within the first 4 years of trading.
The likelihood of business failure increases year-on-year up to five years as shown by statistics on businesses formed in 2017:
| Year | Businesses survived | Businesses failed |
|---|---|---|
| Year 1 | 94% | 6% |
| Year 2 | 73% | 27% |
| Year 3 | 56% | 44% |
| Year 4 | 46% | 54% |
| Year 5 | 40% | 60% |
The chance of business survival varies depending on the industry. According data from 2022, the transport and storage industry had the highest proportion of businesses failures, with a death rate of 23.8%. It also had the highest proportion of new business formed, however, with a birth rate of 21.2%.
The second highest proportion of business failures was seen in the information and communication industry, with a death rate of 13.6% and a total of 30,000 businesses that ceased trading.
At the other end of the spectrum, the property sector had the lowest business death rate at just 7.1% – with a total of 9,000 businesses that ceased trading.
| Industry | Business death rate | Number |
|---|---|---|
| Transport and storage | 23.80% | 41,000 |
| Information and communication | 13.60% | 30,000 |
| Retail | 12.80% | 32,000 |
| Accommodation and food services | 12.80% | 26,000 |
| Business administration and support services | 12.60% | 34,000 |
| Professional, scientific and technical | 12.20% | 59,000 |
| Wholesale | 10.90% | 13,000 |
| Construction | 10.20% | 43,000 |
| Production | 9.60% | 16,000 |
| Education | 9.30% | 4,000 |
| Arts, entertainment, recreation and other services | 9.30% | 19,000 |
| Motor trades | 8.80% | 8,000 |
| Finance and insurance | 8.50% | 3,000 |
| Health | 7.30% | 9,000 |
| Property | 7.10% | 9,000 |
The East Midlands had the highest rate of business failures in 2022, with 13.2% of businesses that ceased trading – or a total of 26,000. The rate of businesses failure was next highest for London and the West Midlands, with a death rate of 12.7% in each region – 30,000 businesses in the West Midlands and an impressive 77,000 in London. Meanwhile, Northern Ireland had the lowest rate of business deaths at 8.2%, a total of 5,000.
While there were a total of 345,000 businesses deaths in 2022, there were also many new businesses formed! Altogether, 337,000 new businesses began trading in 2022. However, the business death rate (11.8%) was higher than the business birth rate (11.5%) for the first time since 2010.
| Region | Business death rate | Number of failed business |
|---|---|---|
| East Midlands | 13.2% | 26,000 |
| West Midlands | 12.7% | 30,000 |
| London | 12.7% | 77,000 |
| North West | 12.6% | 37,000 |
| North East | 12.1% | 9,000 |
| Yorkshire and The Humber | 11.5% | 24,000 |
| Scotland | 11.3% | 20,000 |
| East | 11.2% | 33,000 |
| Wales | 11.2% | 12,000 |
| South East | 11.1% | 49,000 |
| South West | 10.4% | 25,000 |
| Northern Ireland | 8.2% | 5,000 |
Startups fail for multiple reasons, but we’ve listed the most commonly given reasons below, as found by an external survey. The top reason for business failure is running out of cash or failing to raise enough new capital when needed, with 38% of failed businesses giving this as a reason. Other common reasons included a lack of market need (35%) and tough competition (20%).
| Reason for startup failure | Percentage giving reason |
|---|---|
| Ran out of cash/failed to raise new capital | 38% |
| No market need | 35% |
| Got out competed | 20% |
| Flawed business model | 19% |
| Regulatory/legal challenges | 19% |
| Pricing/cost issues | 15% |
| Not the right team | 14% |
| Product mistimed | 10% |
| Poor product | 8% |
| Disharmony among team/investors | 7% |
| Pivot gone bad | 6% |
| Burned out/ lacked passion | 5% |
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