Age of Businesses in Lancashire
2007

Introduction

Information on the age of VAT-based enterprises is published by the Office for National Statistics (ONS). The data is taken from the Inter-Departmental Business Register (IDBR), a highly comprehensive list of businesses comprising over 2 million enterprises representing nearly 99% of UK economic activity and providing a snapshot of this register as at 16 March 2007. The age of individual businesses is calculated from a 'birth date' given in the register, a figure that is taken as the earliest registration date from either the VAT or PAYE registrations.

The Lancashire statistics used in this article, both for the local district authorities and for the Middle Layer Super Output Areas (MSOAs) used by ONS are available from the Lancashire Profile Data Download Centre. Statistics for all other areas of the country can be downloaded directly from the ONS's Neighbourhood Statistics website.

Context

Lancashire has a number of successful businesses (mainly family-owned/managed) that can trace their roots back uninterrupted for one hundred years and more (for examples of such local companies see the related article 100-Year-Old Independent Lancashire Firms on the Web. However, these are exceptional: most businesses have a much shorter life span. How long a company stays in business is influenced by many different factors. Geographic locations, the type of industry or activity it is engaged in, size and age are some predictable influences than can affect how long a business stays active. Some firms may be established to undertake a time-limited task. Unforeseen factors or "events" can also affect the survival of a business, including market influences such as the number and size of competitors and new entrants, changes in technology, as well as general macro economic conditions.

Some information is readily available in the form of business survival rates – that is, the percentage of new firms that continue to operate when they reach a given age. The majority of start-up firms do not operate for very long and generally speaking, businesses have a higher chance of closure (or de-registration) during the first three years of operation than at any other time. After this period the year-on-year number of closures steadily diminishes. In the case of Lancashire, on average about 90% of small businesses (i.e. those with a turnover that makes them liable for VAT registration) are still trading after the first year of operation. In terms of the 3-year survival rate, the measure favoured in the DBERR's "Competitive Indicators", approximately two thirds of businesses are still trading after three years, though this level is open to variation depending on the state of the wider economy. After ten years less than a third of businesses are still likely to be active (see the Research Monitor VAT-Registered Businesses, Sub-Regional Survival Rates.

Anecdotal evidence suggests that failure rates in the first few years are usually much higher for micro-enterprises (those with turnover below the VAT threshold level) than for other smaller businesses and that after 3 years, the survival rates of micro-enterprises continue to be well below those of other small firms. The likelihood that micro-enterprises require less investment could induce these firms to take more risks which may explain the higher probability of exit.

Lancashire Perspective

The distribution of the Lancashire VAT-based enterprises by broad age band is shown below in Tables 1 and 2. The scale of business stock churn over the past decade is illustrated by the fact that no less than 54.5% of the Lancashire sub-region's businesses are under 10 years of age. This is marginally lower than the equivalent proportion both in England and Wales (55.0%) and across the wider North West Region (56.9%). Conversely, the sub-region has a rather higher share of its business stock in the 10 or more years age category (45.5%). The difference with England and Wales of 2.6 percentage points percentage points is not large numerically but nonetheless represents a significant characteristic. In large part this structural element is probably a reflection of the rather below par pace of business formation that Lancashire has experienced over the period allied with the continued presence of a number of mature industrial sectors with above average numbers of older companies.

Figure 1 Age of VAT-Registered Businesses, Lancashire Districts, 2007

Source ONS - UK Business: Activity, Size and Location

Viewed by district (Figure 1) the highest shares of the youngest businesses (under ten years of age) are to be found in the Central Lancashire districts of Chorley (42.9%), Preston (42.5%) and South Ribble (42.7%) and the lowest shares in Lancaster, West Lancashire and Wyre. Blackburn with Darwen and Blackpool have the highest proportion of businesses aged less than two years and Lancaster the lowest share. As might be expected, the general age distribution of businesses between districts appears to be fairly closely correlated with the pattern of business formation rates and survival rates experienced over the past decade (see Tables 5 and 6 below) but structural factors in the form of the local industrial mix also seems to be an influencing element. For example, the agricultural sector has a very low business churn rate having both exceptionally low rates of new business formation and very high rates of business survival. In districts with above-average shares of agricultural businesses the statistical effect is to increase the apparent average age of the business stock. This is particularly apparent in such districts as West Lancashire and Wyre. Conversely, the business churn rate tends to be well above average in the hotels and restaurants sector and districts (e.g. Blackpool) that have a higher dependency on this sector will tend to have a slightly younger business stock in consequence.

Data on VAT-business age bands has also been published for middle-layer super output areas (see Table 3 and Figures 2 and 3). The distribution follows a fairly predictable pattern with the youngest businesses (aged under four years) proportionally best represented within and around the periphery of the larger urban settlements, in part reflecting those areas which have experienced the highest business formation rates over recent years but also the presence of newer industrial and employment areas, particularly those at or near major motorway junctions. With the exception of a handful of older urban industrial areas, businesses aged 10 years or more are proportionally most concentrated within the rural areas, presumably reflecting the presence of agricultural businesses.

Figure 2 VAT-Based Enterprises Less Than Four Years Old, 2007

Source ONS - UK Business: Activity, Size and Location

Figure 3 VAT-Based Enterprises 10 or More Years Old, 2007

Source ONS - UK Business: Activity, Size and Location