New data suggests business 'failure' not as prevalent

Improvements in the quality of business data suggests that genuine small business failure in New Zealand may not be as prevalent as previously thought, Small Business Minister Lianne Dalziel says.

Giving the keynote address on the first day of the three-day Small Business Expo in Wellington, Lianne Dalziel said this was among many positive trends for small to medium enterprises described in the latest edition of SMEs in New Zealand: Structure and Dynamics, a Ministry of Economic Development report of business demographics released today.

"This year, and for the first time, Structure and Dynamics includes unofficial data from a new and improved business dataset, from which more accurate business entry and exit rates can be determined. While unofficial, this data is credible and in line with international experience," Lianne Dalziel said.

"This dataset, called the Longitudinal Business Frame, is larger than that currently used but, more importantly, it is able to distinguish between genuine enterprise start-ups and failures, and enterprise entries and exits due to administrative changes such as a name change or a takeover. This is something that the present business dataset hasn’t been able to do, and why Structure and Dynamics up to now has just published business continuation rates and not entry and exit rates."

If non-employing firms are excluded, the overall survival rate into 2005 for SMEs born in 2001 is 69 percent.

"Interestingly, it also shows that overall firm exit rate from the dataset is 10 per cent. You will notice I use the term 'exit' not 'death' as some of these firms will have chosen to cease to exist, and should not be viewed as a failure. Obviously, some of these firms will have closed involuntarily, but not all of them.

"The conclusion is that business ‘failure’ is not as prevalent as people may think."

The report shows SMEs continue to be an important part of the economy, accounting for 96 per cent of New Zealand businesses, about 30 per cent of jobs and almost 40 per cent of the country's output.

"But it's their potential for growth that makes them so vital to the Labour-led government's economic transformation agenda," Lianne Dalziel said.