Only one in five small firms fail

By Selwyn Parker

The failure rate of small businesses is not 80 per cent within the first five years, as is often quoted, despite much evidence to the contrary.

The real statistics are much more encouraging. In fact, just one in five start-up businesses fall over, which is 20 per cent. A further 20 per cent just peter out.

Another 20 per cent sort of dissolve when the original partners split, but these business generally restart later in a related guise. Twenty per cent are sold to another owner/manager. And 20 per cent survive in more or less their original form.

So, the facts are that only 40 per cent of small businesses cease trading within five years, which is only two out of five. And only half of that 40 per cent truly fail. Thus the more accurate failure rate is one in five.

For these statistics, we're indebted to Richard Higham and Sara Williams' third edition of the New Zealand Small Business Guide [Penguin], an invaluable guide for businesspeople of whatever rank.

The New Zealand Small Business Guide walks readers through most of the hurdles from borrowing money and setting prices (a particularly fascinating subject) to writing business plans, hiring staff and consultants, franchises, the arts of survival and boosting profits. This is a book for dipping, once you have read it right through.

In business as in life, we forget far more than we learn. Thus books like the Small Business Guide should be kept on the desk as a daily reference. This guide won't replace professional advice and it doesn't try to do so. But professional advice can be less than perfect too. This is a book for the sole trader who is very much master of his own destiny.

* Contributing writer Selwyn Parker is abroad but can be reached at wordz@xtra.co.nz