At a glance
- Despite facing mounting pressures, SMEs demonstrated resilience.
- Urban areas lead in startups, rural regions in survival.
- Tailored guidance can help SMEs manage risk and thrive.
Small businesses dominate the UK economy, accounting for 99.8 per cent of the business population and playing a vital role in driving economic growth. Yet, recent ONS numbers tell an interesting story: while over 292,000 new businesses were created in 2023, more than 295,000 closed their doors.
This delicate balance reflects the immense pressures SME (small to medium-sized enterprises) business leaders face from rising costs, inflation and ongoing economic uncertainty, as well as the uneven landscape of opportunities across regions and industries.
Understanding the trends impacting small businesses in the recent past and today, from geographic disparities to long-term survival rates, can help you tailor your client advice and guide them through the early years.
Annual trends
Over 2022 and into 2023, business closures slightly outpaced new startups. Sophie Hossack, Head of Partnerships at Allica Bank, says the data shows how vulnerable SMEs are to economic and geopolitical shocks.
“Businesses during this period were experiencing the consequences of a global pandemic,” she says. “Then came Russia’s invasion of Ukraine and subsequent inflation, further exacerbating these difficult business conditions.
This graph illustrates the importance of providing established businesses, many of which are accounting practices, with the support, guidance and finance they need to manage fluctuations which are out of their control.
Letting established and viable businesses fail is a huge waste of potential, has a direct impact on local communities across the country and on the economy as a whole.
The established SME economy is the real economy,” she says. “By working together and supporting these businesses, accountants and banks like Allica can help build in the resilience needed to manage these economic shocks.”
New enterprises
Throughout 2023, the distribution of new enterprises launched across the UK centred around the country’s large cities, but Ms Hossack notes there were signs of growth in entrepreneurial activity in areas like County Durham and Cornwall.
“This map paints an encouraging picture of Britain’s regions levelling up and a hopeful future for the UK’s entrepreneurs,” Hossack says. “While new enterprise activity is concentrated around London and other major cities, encouragingly there is also strong enterprise creation in the South West and the North East, although regional disparities still remain.
Overall this data highlights the role of business creation in driving economic growth and prosperity. Many of the businesses being launched here will be providing services, parts or labour to many of the country's established SMEs…[which] currently account for a third of the UK economy and provide opportunities for many smaller organisations too, further fuelling the economy.”
Enterprise closures
The regional distribution of business closures across the UK in 2023 was unsurprisingly concentrated in areas with high business density, however, closures in rural areas may also underline the difficulties faced by smaller local economies.
“This map closely mimics that of enterprises launched. Where we see business creation and innovation, we also see some of those businesses failing quite quickly. Often it can be the more established SMEs that have faced issues or growing problems, including access to finance that leave these potentially good businesses exposed,” Hossack says.
She adds accounts play an important role in advising established SME businesses at various stages of the business lifecycle. “With this personalised support, access to funds and suitable banking partners that see their value, these businesses can be helped through tougher times and the country can maintain the types of business that keep the economy firing,” she says.
Long-term survival
Five-year survival rates of enterprises in the UK showed the longevity of businesses in areas with smaller, tight-knit economies, compared to higher churn rates in cities where competition and costs are significantly higher.
Hossack says the data speaks to the resilience that exists amongst British businesses.
“Despite the economic headwinds faced in recent years, combined with the normal challenges that come with running a business, the data reveals that most businesses, especially those at a regional level, are riding out these difficulties and continuing to contribute to GDP growth, employment and communities,” she says. “It’s unsurprising to see lower survival rates in the capital and major cities as the business startup rate is also higher in these regions.
“Many of these businesses will be amongst the more than 600,000 established SMEs that form the backbone of the UK’s economy. Employing anywhere between 5 and 250 people and accounting for a third of GDP, established SMEs that survived the five years running up to 2023 have proven their viability and value.”
