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Start-up numbers hit record low as new ventures struggle

Wednesday, 1 February 2012 | By Michelle Hammond

The number of new business established last financial year was the lowest on record, according to the Australian Bureau of Statistics, with young firms and sole traders the most likely to fail.

 

According to the ABS – which has kept records on business creation since 2007 – the number of actively trading businesses increased by just 0.4% in 2010-11, down from 3.6% in 2009-10.

 

“In June 2011, Australia had more than 2.1 million businesses,” the ABS said in a statement.

 

“The greatest number of Australian businesses were in the construction industry (17%); followed by professional, scientific and technical services (12%); and rental, hiring and real estate services (11%).”

 

Mining had the greatest percentage increase, with business counts increasing 4.2%; followed by healthcare and social assistance, which recorded an increase of 3.5%.

 

The date reveals that in 2009-10, every state and territory recorded an increase in the number of businesses. But in 2010-11, Queensland, South Australia and Tasmania all recorded a decrease.

 

The Australian Capital Territory had the fastest rate of business entry in 2010-11, at 16%; but it also had the highest rate of business exit, at 14.6%.

 

Not surprisingly, the ABS said survival rates are heavily influenced by the age and size of the business, with younger, smaller companies identified as the most likely to fail.

 

In fact, the most common kind of business to close in any year is a sole proprietorship, folding up at a rate of 20% a year.

 

A total of 33% of Australian businesses are registered as companies, 29% are sole proprietors, 22% trusts and 16% partnerships.

 

“Non-employing businesses have a significantly lower survival rate compared to employing businesses,” the ABS said.

 

The data shows 43.3% of non-employing entries in 2007-08 were still operating in 2011, compared to 60% of employing entries.

 

“However, non-employing businesses account for the greatest proportion of both total businesses and business entries,” the ABS said.

 

“Sixty-one percent of all businesses operating in June 2011, and 67.6% of business entries in 2010-11, were non-employers.”

 

Young companies are also the most likely to fail. The ABS data shows almost 30% of new entries in 2007 lasted less than a year.

 

“The survival rate for new businesses is significantly lower than for those businesses that were already established,” the ABS said.

 

The data also reveals that more businesses shrank than grew in 2010-11. The proportion with fewer staff at the end of the year was 5.6%, while 4.9% grew bigger.

 

The figures don’t include the 13% of those businesses that no longer exist. Business exits rose in 2010-11, when 286,000 shut their doors.

 

However, not all companies go bust explosively. In 2010-11, just 9,800 companies went into external administration.