How Many New Businesses Fail In The UK And The Most Common Reasons Why

Starting a new business is challenging. And for some unlucky people, it doesn’t always work out. 

In fact, the latest stats suggest that almost 1 in 5 new businesses fail in the UK each year. 

Now, that’s not to put you off starting your own. Although it may seem like a lot of businesses fail, you’ve got to take the reverse of that statistic in mind. 1 in 5 business don’t work out. But, 4 out of 5 do. 

And if you look closer at the reasons why these new businesses fail each year in the UK, you can make sure that you avoid common pitfalls and traps to strengthen your own pursuit and make sure you’re part of the new businesses that thrive. 

Ready to take a look at the data? Let’s explore how many new businesses fail in the UK and how you can avoid it in our latest guide. 

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How many new businesses fail in the UK? 

During the 21/22 tax year, 810,316 new businesses were formed. Sadly, not all of them make it. 

In the first year alone, 20% of these businesses will no longer exist. It’s a massive drop in such a short space of time, which shows that a lot of businesses will have trouble setting up and starting right. 

As a big pain point for budding new entrepreneurs, we made a special report ‘Why 1 in 5 Businesses Fail In Their First Year’ to help tackle this initial problem. It dives deep into this data and gives you a lot more information about what you can do to avoid becoming another statistic and help your business thrive. 

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Here’s a little sneak peek: 

“For 2018, the business birth rate was 13% and the death rate 11%. Companies start and fail all the time as entrepreneurs discover that simply having an idea is not good enough to carry the whole business ahead.” 

Want to read more? Claim your free report here

Even if you clear your first year, it’s sad to say that 60% of new businesses will fail in the first 3 years. 

Looking further ahead, only about one in three small businesses get to the 10-year mark and live to tell the tale. 

That’s where long term planning comes into play as the main problem point for UK businesses. So, let’s talk about how you can set up your company to be successful from the start – and plan to make it for good. 

Good from the get-go – tips to set up a successful business 

First, let’s talk about creating and setting up your company in the best way. The quicker you get this right, the more solid foundation you’ll build your business on. 

1. Create a business plan first

When you want to set up your business, it can be tempting to dive in headfirst with all the excitement your new idea has brought. 

But taking action without planning can have disastrous results. Before you start building your business, you need to have a plan that outlines who you are, what you do and how your business works. 

And before you brush this off as something that isn’t really needed, consider that those with a business plan grew an average of 30% faster than those that didn’t. What’s more, businesses with a business plan were also 2x more likely to get investments or secure loans than those without. 

Generally, a business plan will cover subjects such as: 

  • Your business objectives and goals;
  • Your employees and business structure;
  • Your products and how you market them;
  • Your customers, competitors, and industry;
  • Your financial information and funding needed.

Overall, your business plan will give you a solid understanding of your business and a chance for you to really research what you’re first, helping to identify any potential issues before they become a problem. 

And despite what you may think, writing a business plan is easier than you think. If you need a hand, follow our step-by-step instructions for writing a business plan here. 

2. Choose the right company structure and use a completion agency

Choosing the right company structure might be one of the fundamental steps to guarantee short-medium term stability.

Each new UK business will have to go through the awkward stage where you need to choose the type of business you are, get registered and ensure that you’re compliant with all the laws and regulations for that type of business. 

It’s the worst part about setting up a business. But it’s an important one. If you do it wrong, you may end up with fines and fees that can seriously harm your cash flow and cause damage to a growing business. 

Firstly, you need to decide the type of company structure that you’re using. 

If you’re a for-profit business, i.e. if you want to make money and take home a nice pay, you can choose to be: 

  • A sole trader, which is most used by one-person businesses such as photographers, hairdressers, tradesmen and more. 
  • A Partnership, which is similar to a sole trader, except that there is more than one person involved in the company.
  • A Limited Company, which is a legal company that classes as its own legal identity. It has more regulations that being a sole trader, but also comes with more protection and bonuses, like allowable expenses that you can claim for.
  • A Limited Liability Partnership, which is like a mixture of a partnership and a limited liability company. 
  • A Public Limited Company, which is a limited company that can sell shares or debentures to the general public. Generally, most new businesses won’t start as a Public Limited Company, so this is one to consider later on in your lifetime. 

Once that’s decided, you might want to use a company formation agent to formalise all of this for you and ensure that your business is set up in the right way.

A formation agency is an agency that specialised in forming companies. They will take care of the paperwork for you, saving time while making sure everything is accurate.

If you don’t have a business address to register your company, company formation agents can provide you with an address to use to protect your private information and home address from the public and sales calls and visits. 

If you’re not a UK resident but want to set up a company in the UK, they’ll also take care of this for you. 

To get you started, we’ve tried, tested and reviewed the best company formation agents on the market that you might want to take a look at. 

3. Get more tips in our free guide 

We can’t list every single tip to business success here. But lucky for you, we’ve covered the best advice and tips to help you manage your first year unscathed in this free guide

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Why 1 In 5 Businesses Fail In Their First Year

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Long term planning to help your business thrive

Great, now we’ve got your business up and running (and it’s not going to be part of the statistic of how many new businesses fail) it’s time to look into the future and tackle the big problems you might face within your first 3 years. 

Here are some of our biggest tips for you to help your business thrive in the long term. 

1. Have your disaster plan ready

Having a disaster plan ready will make you less emotional when things go wrong, hence, making the best decisions.

As we’ve pointed out before, 60% of new businesses fail within the first 3 years. We’re giving you all the tips to make sure that this isn’t you – but you’ll never be able to guarantee plain sailing in any business. 

One of the best ways to avoid failure is to plan for it, and have a lifejacket that you can use as a backup in case the worst was to happen. This is your disaster plan – and it’s something we’d recommend that all businesses have ready in store. 

If you need any convincing that you need this plan, just think back to the start of 2020 and how many businesses were hit with the sudden closing down of the country amidst the coronavirus pandemic. There are just some circumstances we can’t see coming. 

A disaster or continuity plan is a thorough document, the details of which will vary dramatically depending on the industry to which your business belongs. This diagram from Tech Target demonstrates the different layers you will need to consider when creating your own disaster plan. 

A disaster plan will boil down to these key questions: 

  • What will you do in case of an emergency?
  • How can you protect your assets?
  • How can you improve your cashflow if things turn south? 
  • What can you do to prevent your company from going bankrupt if sales stop? 

Yeah, we know they’re not the nicest ones to think about. But if you’ve got the answer to these up your sleeves, you’ll be cool, calm and collected to manage your way through any crisis. It’s much better than being unprepared and panicking at the smallest hiccup. 

2. Don’t skimp on your marketing 

The advice “if you build it, they will come” doesn’t apply to businesses. 

Creating a business doesn’t guarantee customers. Unless you’re willing to put in the investment to actively marketing your business and spreading the word, your customers won’t even know you exist. 

You have to take charge here. You have to tell your target audience that you’re here, that you’ve got a product or service that they’ll love and why they should buy from you. 

Unfortunately, marketing isn’t a straightforward path for all businesses. To get the best from it, you need to really understand who your customer is, what you’ve got to offer that no one else does and the best way to get your message out there to your target audience. 

At Business4Beginners, we’re here for you to get started with your marketing. This includes helpful information such as: 

Want more? Check out our tips, ideas and advice to market your business online here. 

3. Understand your business inside and out

Knowing everything about your company is an almost impossible task, but make sure you know as much as you can.

That business plan we mentioned earlier? That’s not a one-time event that you forget about forever. 

Your business plan should be regularly updated and, most importantly, followed. It’s there to steer your path, define your direction and hopefully, keep your business from becoming another failure statistic. 

As well as your business plan, there are other tools that you should keep under your sleeve to help here. One of them is your elevator pitch

An elevator pitch is a 30-second persuasive speech that introduces yourself, product or company. 

It’s named that way because it should be a speech that you can complete in an elevator ride with someone you’ve just met. It’s a short, persuasive networking tool that allows you to be prepared for unexpected encounters and take advantage of opportunities to meet new people, whether you find them in an elevator or not. It’s a tool to get new contacts, clients, partnerships, funding, and exposure in all different places and can be used for: 

  • Networking;
  • Job interviews;
  • Securing funding;
  • Finding stakeholders;
  • And much more.

A good elevator pitch is one that grabs attention. It’s something that makes people generally interested in what you’re saying and piques their curiosity enough to continue the conversation.

Need help with your elevator pitch? Read our step-by-step guide to writing an elevator pitch to be remembered. 

Don’t forget to claim your free guide! 

With this guide, you’ll have gotten an overview of how many new businesses fail in the UK and some tips that you can use to make sure it doesn’t happen to you. 

But if you want more information and to ensure you don’t become one of the 1 in 5 businesses that fail in their first year, you’ll want to download our free guide

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Business4Beginners has been advising new businesses owners since 2013. The founder, Paul Bryant, has created, grown and sold several successful businesses and remains the editor and fact-checker of all content published on the site.
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Why 1 In 5 Businesses Fail In Their First Year

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