How Many Businesses Fail in the First Year in the UK?
Starting a business can be an exciting opportunity, but around one in five small businesses fail within their first year. Find out which regions and industries have the highest business failure rates and common problems affecting small businesses.
There are 5.5 million small businesses in the UK, making it a hotspot for entrepreneurial spirit. But starting a business can be challenging, and not all companies stand the test of time. Here, we explore what percentage of small businesses fail and some of the pitfalls to avoid.
What percentage of UK businesses fail?
Some 316,310 UK businesses stopped trading in 2020, according to the latest data from the Office for National Statistics (ONS). The business ‘death rate’ was almost 11% in 2020.
The business death rate is the proportion of active businesses that close down within a reporting year.
Covid-19 created very challenging conditions for UK small and medium-sized enterprises (SMEs). Around 47% of SMEs reduced their operations in 2020, while 31% closed down completely on a temporary basis.
What percentage of UK small businesses fail within the first year?
In the UK, according to research by Fundsquire, a global start up funding network, 20% of small businesses fail in their first year. Around 60% of small businesses fail within the first three years.
Which regions have the highest business death rate in the UK?
A business death rate reflects the proportion of businesses which cease operation within a reporting year. According to the ONS, London recorded the highest business death rate of 12.1% in 2020. Businesses in the West Midlands had the second highest death rate of 11.9%, while the North West recorded the third highest rate of 10.6%.
Which industries have the highest business death rate in the UK?
According to figures from ONS, the transport and storage industry (including postal services) had the highest business death rate in 2020, reporting a rate of 14.7%. This was closely followed by the business administration and support services industry, with a death rate of 14.1%. The information and communication industry had the third-highest business death rate of 12.8%.
The table below shows the death rates for UK businesses in different industries.
UK business death rate by industry
Source: Office for National Statistics, 2020
Why do small businesses fail?
Small businesses fail for a variety of reasons. A survey by business analytics platform CB Insights revealed the following top causes of start up failures:
- 38% – ran out of cash or failed to raise new capital
- 35% – there was no market need
- 20% – were outcompeted
- 19% – had a flawed business model
- 18% – regulatory or legal changes
- 15% – pricing or cost issue
- 14% – not the right team
- 10% – product mistimed
- 8% – poor product
- 7% – disharmony among team or investors
- 6% – pivot went bad
- 5% – burned out or lack of passion
» MORE: UK small business statistics
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Brean is a personal finance writer at NerdWallet. She covers a range of financial topics and has written for consumer titles including Which?, Moneywise and The Motley Fool. Read more