KEY POINTS:
Fewer New Zealand businesses are failing than three years ago, with the youngest companies showing the biggest improvement in survival rates.
A review of 100,000 business records by credit reporting agency Dun and Bradstreet shows the number of business failures has decreased by 36 per cent over the
past three years.
Dun and Bradstreet New Zealand's general manager John Scott said the figures, which show the rate of business failure dropping from 0.88 per cent in 2005 to 0.54 per cent last year, were a sign executives were doing a good job steering companies through tough times.
"We know economic conditions are challenging, but overall these are pretty promising signs."
Scott said the study showed an improvement in business survival across the board, in contrast to what was sometimes heard from those at high levels in the business community.
Young companies showed the biggest drop in failures.
The failure rate for businesses nine years old or younger fell 35 per cent, from 2.04 per cent in 2005 to 1.21 per cent in 2007.
Not all companies on the database had their age listed, so some were included in the overall result but not in the age-group breakdown.
Business New Zealand chief executive Phil O'Reilly said the study was in line with Statistics New Zealand figures showing a 2 per cent increase in the number of businesses from February 2006 to February 2007.
However he predicted business failures would increase in the next two years, as a downturn in the housing market and tougher economic conditions began to bite.
"Quite a bit of the survey period was in quite good economic times," he said.
"It [will be] much tougher economic times over the next year or two."
O'Reilly said businesses had proved incredibly resilient to challenging conditions, particularly in the manufacturing sector.
"What we've seen there is a triumph of management and company capability that's really quite awe-inspiring." But he warned that resilience couldn't last forever.
"The longer you see the high dollar and the longer you see more economically difficult times, the more you'll see company and business failures."
Failures decreased for all sectors apart from communications and electricity, gas and sanitary services.
Services, retail and transportation improved the most, with transportation failures down a whopping 55 per cent - a figure Scott said was surprising given that fuel prices had been "leaping around".
Broken down by size, businesses with between 50 and 199 employees showed the biggest decrease in failures, dropping by 44 per cent.
Small businesses also fared better - failures for companies with between 1 and 5 employees dropped 21 per cent, while those with between 6 and 19 employees dropped 24 per cent.
As well as comparing failure rates, Dun and Bradstreet compared their risk ratings of 25,000 companies between 2005 and 2007.
A review of 10,000 finance, real estate and insurance companies showed the sector had the biggest increase of all sectors in companies rated a low risk of failure; up four per cent since 2005.
However Scott said this did not mean fewer companies in the sector had failed. The ratings do not include failed companies, so the failure of weaker finance and real estate companies could actually improve the sector's risk ratings.
According to Dun and Bradstreet, more than 70 per cent of New Zealand companies have an average risk of failure, meaning a chance of between 1 and 2.5 per cent of failing within the coming year.
* SURVIVAL STATS
Credit reporting agency Dun and Bradstreet reviewed a sample of 100,000 businesses from their database of 300,000 business records. They found:
36 per cent fewer businesses failed in 2007 than in 2005.
Fewer than 1 per cent of businesses in the sample failed, even in 2005.
Businesses nine years old or younger were 35 per cent less likely to fail in 2007 than in 2005.
Businesses in all sectors apart from communications and electricity, gas and sanitary services were more likely to survive in 2007 than in 2005, with failures in transportation businesses down the most at 55 per cent.
