Experian: Many businesses back from the brink

Sixty per cent of businesses assessed as 'close to bankruptcy' survived next six years, says credit firm

Two thirds of businesses on the brink of bankruptcy in 2006 have survived – and microbusinesses have done best of all in some ways, according to a new report from credit company Experian.

The firm polled 44,000 UK companies sailing close to the wind six years ago, but has found that most managed to survive one of the most turbulent periods in economic history, it said in an announcement.

"Half of the businesses that survived [even] managed to turn their business fortunes around and significantly improve their overall financial health," Experian stated.

"Despite the volatile economy, approximately one in eight (13 per cent) of the businesses increased their employee base as well as significantly improving their overall financial health while just over a third (37 per cent) improved the financial performance of their business while either maintaining or reducing the number of employees."

A total 36 per cent of businesses that were assessed as close to bankruptcy in 2006 went on to increase their number of employees over the next six years.

Overall survival rates appeared to increase in relation to how large the business was, Experian said – as might be predicted. However, the smallest of businesses, if able to avoid going over the edge, were more likely than larger ones to end up in an "excellent" financial position.

"A business with one employee has the survival rate of just 58 per cent, compared to 80 per cent for businesses with more than 100 employees. This is likely to be down to smaller companies finding it easier to wind themselves down, while larger businesses with bigger overheads have the greater flexibility to reduce costs by laying off staff."

However, if a microbusiness does survive, it is more likely than any other business size to transform itself from the brink of bankruptcy to excellent financial health. Experian's analysis said that, while a larger business is more likely to survive tough times, it is also more likely to be continuing to struggle six years later than a smaller company.

Craig Boundy, UK and Ireland managing director of Experian, said those with five or fewer employees showed "particular adaptability through a period of unprecedented challenges". Manufacturers, however, showed greater resilience than services companies.

"Almost one in five businesses with one employee managed to completely turn their organisation around. This is surprising when you consider that a microbusiness has little flexibility; there are no other employees and overheads are usually low anyway.

"The directors of these microbusinesses have demonstrated sharp business acumen, and that they have the greatest potential to continue to create jobs and growth in our economy," he said.