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Published 27 May 2022
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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%.

» MORE: Top cities in the UK to start a business

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

Death Rate (%)
Transport and storage (inc. postal)14.7
Business administration and support services14.1
Information and communication12.8
Finance and insurance11.6
Accommodation and food services11.4
Professional; scientific and technical11.3
Arts; entertainment; recreation and other services7.8
Motor trades7

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

Compare small business loans

Ensuring that your small business has enough capital is essential for its long-term success. The right business loan offer or small business grant could help you access the finance you need to balance the cost of running your company and unlock investment or growth opportunities.

Shopping around for the best deal can help you find a finance option to suit the needs of your business. You can compare business loans for your company using our comparison tables.

Image source: Getty Images

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