The incidence of business failure, as represented by the number of company liquidations, peaked during the early 1990s recession at around 24,500 (1992).

It then fell steadily to a low of 12,610 in 1997. Tougher economic conditions in 2001 and 2002 saw business failures move back above 16,000 but with the economy subsequently improving, failures fell to 12,192 by 2004 before settling at around 13,000 in each of the following three years.

By the end of 2008, the economic downturn was beginning to impact on the corporate sector and failures began to creep up again. For 2008 as a whole there were 15,500 business failures with the outcome for 2009 likely to be in excess of 20,000, a figure expected to be repeated in 2010.

Source: ONS

It is important to realise the distinction between business failures and voluntary exits.

Contrary to popular belief, business exits are not dominated by business ‘failures’.

The majority of businesses are not forced to leave the market place but exit for voluntary reasons such as “not making enough”, the would-be entrepreneur instead returning to full-time employment.

Others leave for purely non-financial reasons because their circumstances change. For example, they get married, move house or are simply ‘serial entrepreneurs’, closing one business and then starting another.

Between 25% and 30% of businesses are run by entrepreneurs who have previously run another business.

The proportion of business exits that ‘fail’, in a financial sense, (leaving someone or some institution with a debt), at about 20%, has remained remarkably constant over the past decade.

In addition, the proportion of these ‘failures’ that eventually repay their creditors has remained at about half over the past ten years.

In general, it has been estimated that less than 40% of business start-ups survive more than five years and more than a third exit after just two years. Formal legal exit proceedings, such as receivership or bankruptcy, are frequently avoided because the amounts involved are often quite small.