ExtraMileRecently, I’ve been spending some time working on a new benchmarking tool so that accountants can compare the results of a client’s business with others in the same industry. At the same time, instead of accountants just presenting their clients with a Profit and Loss Account and the Balance Sheet, with a simple overview such as: “You made £0000s last year, Fred, which is down on the previous year and the Balance Sheet doesn’t look too rosy”, I’m hoping accountants will see the advantage in producing a meaningful analysis so that their clients have the right information to make the right management decisions. To do that, accountants will need the special calculators I’ve written (see the blog post I wrote last month, here) as well as the benchmarking tools called ExtraMile and ExtendedReport.

Demography  

Demography can be defined as “the study of the population, its size, distribution, composition (such as by social, ethnic, age or other groupings) and its changes in relation to social factors such as geographical boundaries.”  The words “demography” and “demographics” come from the Greek word “demos” meaning people but it can also mean, for my purposes, businesses.

At this point, I thought it would be useful to summarise some of the statistics that float about showing how many businesses there are in the UK, how many have died (gone bust etc) or started up. To this end, I contacted the Office for National Statistics and obtained some very useful facts, figures and statistics. This mysterious and often confusing world is called “demography”.  The data is © Crown Copyright so I must mention that.

To start with, it’s useful to note the meaning of some of the terms used:

  • Active: The starting point for demography is the concept of a population of active businesses in a reference year (t).  These are defined as businesses that had either turnover or employment at any time during the reference period. Births and deaths (see below) are then identified by comparing active populations for different years.
  • Births: A birth is identified as a business that was present in year t, but did not exist in year t-1 or t-2.  Births are identified by making comparison of annual active population files and identifying those present in the latest file, but not the two previous ones.
  • Deaths: A death is defined as a business that was on the active file in year t, but was no longer present in the active file in t+1 and t+2.  In order to provide an early estimate of deaths, an adjustment has been made to the latest two years deaths to allow for reactivations.  These figures are provisional and subject to revision.
  • Survival: A business is deemed to have survived if having been a birth in year t or having survived to year t; it is active in terms of employment and/or turnover in any part of t+1

Number of Start-ups by English region and GB country (2008 to 2012)                  

The only official source of data on business start-up is produced by the ONS.  The latest information available is 2012 and is based on information provided by BankSearch. The number of start-ups is based on the number of new business bank accounts opened which is therefore only an indicator rather than a finite figure. A small number of start-ups could not be allocated to a specific English region or GB country.

 

Year

Region / country

2008

2009

2010

2011

2012

North East

13,500

13,600

15,400

14,900

14,300

North West

43,900

45,700

49,700

51,300

48,000

Yorkshire and The Humber

29,200

30,400

33,800

34,400

33,300

East Midlands

28,500

27,900

31,200

32,600

31,000

West Midlands

38,600

38,000

40,200

41,100

39,800

East of England

39,500

40,600

46,500

49,300

47,500

London

82,000

87,200

104,000

115,400

113,000

South East

61,900

64,000

72,100

76,800

73,300

South West

38,100

37,700

40,500

42,200

40,100

           

England

375,200

385,000

433,300

458,000

440,400

Wales

19,000

18,300

19,600

19,900

19,100

Scotland

19,700

20,500

25,300

28,300

28,800

           

Great Britain

416,600

428,400

482,800

507,900

489,800

This data is not publicly available, but provides the most comprehensive estimate of the total number of business start-ups in Great Britain.

It’s odd that the start-ups in 2012 were less than in 2011. I don’t know the reason for that.

Business Demography, 2012

Please find a link to the latest publication (27 November 2013) on business demography here.

demographyThere seems to be a mismatch of data in comparison with the start-up data from BankSearch. Birth here relates to businesses first registering for either VAT and/or PAYE, whilst deaths relate to businesses de-registering for either VAT and/or PAYE. It therefore misses out the very smallest start-up businesses i.e. those that fall outside the compulsory VAT and PAYE registration thresholds. The publication also provides break downs by regional, country and local authority areas and by industrial sectors.

Although the statistics in this release are derived from the IDBR, the total stock of active businesses is greater than the UK Business: Activity, Size and Location publication. This is mainly because the definition of an active business is based on activity at any point in the year, whereas UK Business: Activity, Size and Location is based on an annual snapshot at a point in time.

Headline Figures

• The number of business births increased by 8,000 (3.1%) between 2011 and 2012.

• The number of business deaths increased by 25,000 (11.0%) between 2011 and 2012.

• In 2012, the births of new businesses (270,000) was greater than business deaths (255,000).

• The move towards economic recovery has seen birth rates being higher than death rates from 2011, but the gap has narrowed in 2012.

• London had the highest business birth rate at 14.8% and the highest death rate at 11.7%. Apart from London the number of birth and deaths by region were similar.

• In broad industry terms, accommodation and food services had the highest death rate, at 13.3%.

Rural businesses

rural businessThere are more businesses per head of population in predominantly rural areas than in predominantly urban areas, reflecting there being a greater number of smaller businesses in rural areas. Source: here.

Between 2007 and 2010, there was a general decrease in rate of business start-ups per head, reflecting the economic downturn, but the rates across all area types have since become stable or have increased. Since 2008 there have been more business start-ups per head of population in predominantly urban areas than in predominantly rural areas.

Summary

Business Demography mainly focuses on changes in the registered business population. Data are produced on births, deaths and survival of businesses. Business births and deaths are presented by industry and geography. In addition, a series on business survival is also presented, with 1 to 5 year survival rates by industry and geography.

In 2012, there were 270,000 business births i.e. new registrations, in the UK, a birth rate of 11.4%. This was compared with 261,000 births in 2011, a birth rate of 11.2%. In 2012 there was also a 3.1% increase in the number of business births. The number of business births was the highest since 2007 (when there were 281,000 births).

Provisionally for 2012 there were 255,000 business deaths i.e. business de-registrations, a death rate of 10.7%. This compares with 230,000 business deaths in 2011 and a death rate of 9.8 %. In 2012 there was an 11.0% increase in the number of business deaths.

Business births and deaths, 2003 – 2012

In recent years the rate of business births per year has usually been higher than the rate of business deaths. This was the case leading up to the 2007 global financial market shock and subsequent economic downturn in 2008/09. GDP grew by 3.4% in 2007, before falling by 0.8% in 2008 and by 5.2% in 2009. The rate of business births fell in 2008 and 2009 as economic conditions deteriorated. This is likely to reflect uncertainty around the economic outlook at that time and constrained access to finance as the financial sector adjusted to the global shock.

The death rate of businesses in the UK fell in 2008 before increasing sharply in 2009, rising above the birth rate. One factor behind this could be that a number of businesses continued to trade in the expectation that economic growth would resume quickly and benefiting from lower interest rates during this period. However, GDP growth did not return until 2010, by which time some of those businesses had ceased trading.

The rate of business births once again became higher than the rate of business deaths from 2011.

GDP grew by 1.2% in 2011 and by 0.1% in 2012, with positive quarterly growth in four of the eight quarters of these years. While GDP growth resumed, the economic outlook remained unusually uncertain, with output moving between expansion and contraction. The rising rate of business births and the falling rate of business deaths may reflect the economy’s emergence from the downturn, and the usual trend between 2003 and 2007 re-asserting itself. While the rate of business deaths increased in 2012, it remained below the rate in 2004.

Business births and deaths by broad industry group

In 2012, the highest rate of business births occurred in business administration and support with 15.0%. This was followed by professional, scientific & technical with a birth rate of 14.4% and information & communication with a birth rate of 13.7%. In terms of the overall number of births, professional, scientific & technical created the highest number of businesses at 61,000. Within professional, scientific and technical the largest contributing industry was management consultancy, with 21,000 births and 16,000 deaths.

The highest business death rate, at 13.3%, was in accommodation and food services. This was followed by business administration and support services at 13.1%. In terms of the overall number of deaths, professional, scientific & technical had the highest at 44,000 followed by construction at 37,000 and business administration and support services at 26,000.

Business births and deaths by UK region

failuresuccesssignWithin the regions, London had the highest business birth rate at 14.8% followed by the North East (11.4%) and North West (11.4%). The region with the highest business death rate was London at 11.7%, followed by the North West region at 11.4%. Northern Ireland had the lowest birth and death rates at 7.0% and 9.4% respectively. The highest number of births and deaths were seen in London, at 65,000 and 52,000 respectively.

London was the region with the biggest business churn rate (highest number of births and deaths) whereas Northern Ireland traditionally has a much more stable business population. Apart from London, the balance between births and deaths were fairly similar. In terms of birth and death rates, Northern Ireland also had a large difference in rates.

Business survivals

The UK five-year survival rate for businesses born in 2007 and still active in 2012 was 44.6%.

By region, the highest five-year survival rate was in the South West region at 48.1%, while the lowest was in London at 41.7% which mirrors the churn rate seen in the business birth and death data. By broad industry, some notably high five-year survival rates include health with a survival rate of 56.1% and education with a survival rate of 54.5%. Hotels & catering was the lowest with only 37.0% of businesses surviving for five years. There has been an increase in one – year survivals from 2011 births, compared with 2008-2010 births, which reflects improving economic conditions.

More on deaths

Today, the latest insolvency figures for Q4 of 2013 have been released. R3, the trade body for insolvency professionals had something to say about the figures:

“The corporate insolvency figures are in-keeping with the general downward trend in new cases since the recession. Insolvencies are now a third down from their peak at the end of 2008. Given the recent pick-up in the economic recovery though, it is not clear how long this trend will last.  The early stages of an economic recovery are often a lot harder for some businesses to negotiate than recessions themselves. Historically, corporate insolvencies increase as the economy exits recession. With corporate insolvencies still low, it may be the case that economic recovery hasn’t taken hold as firmly as it might otherwise appear.

Stuttering growth, low interest rates, and creditor forbearance have helped keep corporate insolvencies lower than they normally would have been since the recession. Some businesses will have taken advantage of the extended gap between recession and growth to put their finances back in order, but this won’t be the case for everyone. The economic recovery and any future rise in interest rates is likely to put upward pressure on insolvencies. Indeed, recent R3 research found that 96,000 businesses would be unable to repay their debts if interest rates were to rise, while 166,000 businesses said they were having to negotiate payment terms with their creditors.”

In conclusion

In conclusion, two quotes on statistics worry me, at least a little:

  • Mark Twain said “Facts are stubborn things, but statistics are pliable.”
  • Ron DeLegge II said: “99 percent of all statistics only tell 49 percent of the story.”
Martin Pollins

Martin Pollins

Managing Director at Bizezia
Martin Pollins is a Chartered Accountant with wide experience in corporate finance and business management. He holds a number of directorships and has served on the boards of several companies, including those listed on the London Stock Exchange, AIM and OFEX.

He was a Council member of the Institute of Chartered Accountants in England and Wales from 1988 to 1996.

Martin Pollins ran his own firm based in Sussex and was the first Accountancy firm in the UK to advertise on television and Martin went on to create and launch the CharterGroup Partnership (the UK's first Accountancy network) and then LawGroup UK (one of the largest networks of lawyers in the country).

Martin started work on the Bizezia concept in 1996, developing the broad range of information resources and products over the past 18 years.
Martin Pollins
Follow

Get every new post delivered to your Inbox

Join other followers: