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20% of New Brazilian Businesses Don’t Resist a Year. Half Disappear in 8 Years

Brazilian small business Survival of businesses in Brazil is the highlight of the Company Demographics survey, disclosed this Thursday, November 29, by the IBGE (Brazilian Institute of Geography and Statistics). Of the total of 737,950 firms established in 1997 throughout the country, only 51.6% remained active as of 2005.

Enterprises with up to four employees answered to 90.8% of the total number of companies established. According to the analyst in charge of the survey, KΓ‘tia Carvalho, the IBGE observed that of the companies established in 1997, eight years after their establishment, in 2005, nearly half had already closed their doors. "Nearly half the companies was already out of the market. It is a survival problem."

KΓ‘tia Carvalho stated that the survey does not provide an explanation for those trends. "We can only portray what is happening," said the technician at IBGE. She admitted, however, that aspects of the economic conjuncture might be linked to the extinction of companies in Brazil.

"These factors might definitely play a role." The analyst called attention to the fact, though, that the "survey has no means for determining the cause."

According to the survey by the IBGE, the ratio of companies established in 1997 that survive decreases over time in all ranges of occupied personnel, with the lowest survival rates being recorded among smaller-sized companies, of up to four occupied persons.

According to the survey, in the first year of existence, 19% of the enterprises closed their doors. Survival rate in 1998 stood at 81%. Two years later, the rate of defunct companies rose to 27.2%. Eight years later, the survey shows that only 51.6% of the companies established in 1997 remained active.

By region, one can observe that the lowest enterprise survival rate occurred in the North of the country, where 46.5% of the units established in 1997 remained active as of 2005.

The highest survival rate after the eight-year period was recorded in the South of Brazil: 53.8%. A total of 51.8% companies remained active in the Southeast, 51.6% in the Northeast and 47.8% in the Midwest.

The analysis by size indicates that 5.3% of the companies established in the range of up to five occupied persons entered the next highest range, of between 5 and 19 occupied persons, in the year after establishment.

The IBGE technicians claimed, however, that a company not entering a higher range does not imply that it did not grow, only that the growth was not sufficient for the occupied personnel range to be changed.

ABr

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  • Donald Reid

    Director
    OBS: My comments

    Reasons for failure:

    1.> Lack of working capital
    2.> Inexperienced management – selection of employees – understanding of market
    3.> Taxes
    4.> Underpricing of services rendered

  • ch.c.

    Not necessarily that bad, curiously !
    I wonder if in developed countries the ratio is not worse.
    The problem is not the 50 % failure rate, but how are performing the surviving ones.

    Example 1: if 2 people start 2 new businesses, if one fails and the other grow to 4 people, it becomes highly successful, since it generates more jobs overall. And to make it more successful and profitable for the surviving ones, the government should reduce the bureaucracy and red tape. Thus the surviving ones could grow to 5 or 6 people instead of 4 during the same 8 years. And they would also being more profitable per worker, generating higher wages.

    Example 2 : in my country, one of the wealthiest and most successful in the world, there is a trend that a some point in the life, many people withdraw their pensions fund and savings to create their business.
    The rate of failure is at around 75 % after less than 3 years.(Sadly ???) true.But this is not a failure, because the other 25 % generates far more jobs and biggerwealth than the jobs lost in the failing new or exisiting businesses. And those who failed will find a new job in an exisiting successful business.

    End results : my country has an unemployment rate of below 3 % and a shortage of workers in just about every industry. And one can set up a business in far less than 2 weeks very cheaply. Not everyone despite their (natural?) own ego of being better than others are really better than others. A company losing money or struggling to survive must either restructure itself, have a stricter discipline or MUST disappear. And the minority of winners will far more compensate the majority of the failures.
    That is sound and healthy business vision.

    πŸ˜‰ πŸ˜€ πŸ˜‰

  • João da Silva

    Donald Reid
    [quote]OBS: My comments

    Reasons for failure: [/quote]

    Great.You summed them all up succinctly. Add the antiquated labor laws and labor courts that consider small and medium sized businesses as demons.

  • João da Silva

    20% of New Brazilian Businesses Don’t Resist a Year. Half Disappear in 8 Years
    I read about it this morning. I wonder why the reasons for the closures of the companies were not given.

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