Lancashire County Council Logo | Listen | Home | A to Z | Feedback | Complaints | Your Council | Business | Residents | Visitors |
Business survival rates show the percentage of businesses that are still trading a certain number of years after they first started. Under the DTI's "Competitiveness Indicators" this business survival rate is one of the key measures used to give a picture of the relative competitiveness of UK geographical areas. It should be emphasised however that those businesses that cease trading should not necessarily be presumed as failures. Businesses close for many different reasons as well as failure (insolvency or bankruptcy). Many businesses are closed voluntarily: for example, the owner may have retired; the business may have been taken over; it might simply have exploited the available market; or it may have completed a time-limited task.
Different sources can be used to produce estimates of survival rates. For example, (External) Barclay's Bank estimate survival rates by monitoring the openings and closures of business bank accounts. This paper uses estimates prepared by the Small Business Service (SBS) based on the use of VAT registrations and de-registration data. Businesses that are registered for VAT can be tracked from the time they first register until the time that they notify HM Revenue and Customs that they have ceased trading or that their turnover has fallen below the prevailing VAT threshold. The threshold of compulsory VAT registration at the start of 1994 was an annual turnover of £45,000. In line with national inflation, annual increases raised this threshold figure to £61,000 at the beginning of 2006. This level is sufficient to include most mainstream small businesses but will not include many micro and other small mostly self-employed businesses for which the Barclays-type data may be a better indicator. Overall, details from the Inter-Departmental Business Register suggest that at the beginning of 2005 there were over 1.8m VAT-registered businesses in the UK out of an estimated 4.3m businesses in total.The published information shows survival rates at six monthly intervals up to 48 months, where available, though the main focus is on one and three-year survival rates. In previous SBS releases the survival rates were only made available for local; Business Link areas. For the first time the survival rates have now been calculated for local authorities. (External) The full national dataset may be obtained from the Small Business Service website whilst Lancashire local authority figures are available from the Lancashire Profile Data Download Centre .
The time span of the data is limited and it cannot be separated from the wider business cycle. Overall, however, seen from the perspective of both one-year and three-year rates, business survival has improved substantially over the past decade, though the more recent data shows this improvement to have tapered off over the latter year. Generally, the increase in business survival corresponds to the increase in the total stock of businesses over the same time frame.
In the latest year (2004) all but three Lancashire districts (Blackburn, Blackpool and Hyndburn) matched or exceeded the UK average one-year business survival rate. The best out-turns were for Chorley and South Ribble: with a business survival rate in 2004 of 96% these two districts ranked jointly with seven other UK districts as having the best performance in the UK. Poorest ranking Blackburn with Darwen with a business survival rate of 87% in 2004 occupied a joint 3rd lowest position in the UK.
Viewed over the full decade 1995-2004, all Lancashire districts have followed the national tendency towards improved business survival (Table 1). For the most part this improvement was most marked in those districts that began the period with the poorest survival rates. This characteristic was especially notable in Burnley which appears to have improved its business survival rate by twelve percentage points between 1994-2004 (the joint second-highest rate of increase in the UK).
Three-year business survival rates have shown a similar pattern of increase over the period 1995-2002 with the gap in survival rates both between Lancashire and The UK and between districts having narrowed considerably (Table 2). The improvement was especially favourable in Lancaster and Burnley, though in the latter case the survival rate for businesses set up in 2002 still remained well below the UK average. Lancaster together with Ribble Valley were amongst the small group of authorities that for businesses set up in 2002 apparently enjoyed amongst the highest three-year survival rates in the UK. Blackpool and Hyndburn, however, were at the other end of the scale, ranking amongst the poorest performers in the UK.
Businesses generally have a higher chance of closure (or de-registration) during the first three years of operation than at any other time. After this period the year-on-year number of de-registrations is much lower. This characteristic is illustrated in Table 3 which shows business survival rates up to ten years for the whole of the United Kingdom.
How long a company stays in business is influenced by many different factors. Geographic location, type of industry or activity, size and age are some predictable influences that can affect how long a business stays active. For example, some business sectors like retailing, hotels and restaurants tend to have much higher de-registration rates than others (e.g. agriculture), so other things being equal, areas with a higher mix of these would have a lower business survival rate. Unforeseen factors or "events" can also affect the survival of a business, including market influences such as the number and size of competitors and new entrants, changes in technology, as well as general macro economic conditions. Clearly, from the perspective of an entrepreneur investing in a new business, a longer survival rate is desirable as this implies a higher return on the initial investment. However, longer survival rates are not necessarily optimal for the economy overall.
Many studies have shown that high levels of business churn (that is, high levels of both business entry and exit) can be interpreted as a favourable characteristic as it can lead to improvements in productivity and economic growth as more productive or innovative businesses displace less efficient incumbent businesses. It can be viewed as promoting a healthy and competitive economy reflecting a steady process of adjustment from declining to growing industries. In contrast, a static market with little entry and exit will have longer survival rates but may be less efficient and as such may be seen as a sign of undesirable stagnation. Beyond a certain point, of course, very high levels of churn or turbulence could also be seen as a sign of unhealthy instability.
VAT Registered Business Survival RatesThis page was compiled by Peter Kivell .
All enquiries from the media should be sent to Corporate.Communications@lancashire.gov.uk .
Any other questions about the content of this page may be sent to EconInfo@lancashire.gov.uk .
For all enquiries about the county council's services , contact the Customer Service Centre on 0845 0530000 (01772 530000) or at Enquiries@css.lancscc.gov.uk .
Printer Friendly Version | About our website | Top of page | Office of the Chief Executive Copyright © 2009, Lancashire County Council | Site Terms (External) Tell us what you think about our site...