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How many small businesses 'fail'?

Rhys Roberts - Friday, February 03, 2012

Subject to the usual proviso about lies, damned lies and statistics the latest “Counts of Australian Businesses” makes for interesting reading. 

Over the past 4 years the number of businesses in Australia (measured by the number of ABNs) has grown by just under 4%, with all that growth coming in the 2010 year.  At the same time Australian GDP has grown by just under 10%, which suggests that the growth in GDP has been absorbed by existing businesses doing more, rather than more businesses. 

As usual the ABS has provided an analysis of “failure” rates measured by the longevity of those businesses that closed during the previous 4 years.  They report that of all business in existence as at June 2007 almost 40% had cancelled their ABN by 30 June 2011.  But if you look at just the 300,000 ABNs that were issued in the 2007/08 year 52% of those had exited after 4 years.

The big unknown amongst all this is how many of these businesses are “failures” (either went bust or closed because the owner wasn’t able to make a go of it) as compared to how many were “successful closures” (retirements, business sold profitably, etc).   There are competing schools of thought on this, but these numbers certainly do seem to support the case that surviving the first 1 to 3 years in a new business is tough.

At Viridity we offer a range of services for businesses who are just starting out, so please contact us if you're wondering what systems you'll need to put in place to help you avoid becoming a statistic!

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