Businesses should hire quick and structure as a trust to survive: Research

Survival rates for small businesses are tough.

Only 51% of new business starts survive four years in operation, according to data published last week by research house McCrindle based on an analysis of the latest figures from the Australian Bureau of Statistics combined with population data.

The data reveals the key attributes which determine the success or failure of a business and while some of the findings are obvious, others are more surprising.

Businesses which survive and succeed are more likely to have a higher turnover, be structured as a trust, be located in Tasmania, have more employees and operate in the healthcare and social services sector.

Researcher Mark McCrindle told SmartCompany business growth has slowed, with the total number of businesses growing by 3.4% in the four years to June 2012 to more than 2.14 million, while the population has increased by 6.8% and gross domestic product has risen by 8.5%.

“It is a depressed environment for small business, particularly for new business,” he says.

“The low survival rates are an example of it being tough anyway when you start a business, but a few years on from the global financial crisis the financial challenges are becoming more structural.”

McCrindle says some of the research findings are fairly self-evident, such as the finding that those businesses with higher turnover are more likely to survive.

The highest business survival rate is for those businesses with a turnover of more than $2m, where four in five businesses survived over the past four years.

In comparison, businesses with turnover of $200,000 to less than $2 million had a survival rate of 72.4%; those with $50,000 to less than $200,000 had a 61.9% survival rate; and those with zero to $50,000 just a 47.5% survival rate.

More surprising was the finding that a trust has a better survival rate than a sole trader or registered business.

The research found trusts have had the highest survival rate over the past four years at 69.4% followed by private companies at 66.4%, partnerships at 63%, and publicly listed companies at 62.6%.

“The point there is companies have more compliance requirements, but they also have a better survival rate and it probably indicates the level of sophistication of the business behind it,” McCrindle says.

The state in which the stock of businesses are most likely to survive is Tasmania at 65.6%, followed by South Australia at 64.7%, with the lowest levels of survival being in the Australian Capital Territory at 59.0%, the Northern Territory at 59.6% and Queensland at 59.7%.

Those new businesses which do not employ staff are also the most likely to fail as the greater the number of employees for a new business, the more likely it is to have survived over the last four years.

The research found the survival rate of a new business with 200+ employees is 73.9% compared to a business with one to four employees, which has a survival rate of 59.6%.

Of the sectors for a successful business to operate in, healthcare and social assistance is the best performing, according to the research.

This area proportionally grew the most in the 2011-2012 financial year by 3.1%, followed by mining at 2.6%.

“Those industries responding to demographic trends are doing well, like healthcare and social services,” says McCrindle.

“If you look at what is not doing well, it’s the manufacturing area or anything that involves something that can go offshore, or things like back office support and admin are really under a bit of strain.”