It is relatively straightforward to set up a small business in New Zealand, and many people look at setting up their own companies. However, failure rates are high for small businesses, especially in the first few years.

Small business owners who research and develop a clear business strategy and have an understanding of cashflow have the best chances of making their business succeed.

High failure rates among small businesses

Nearly half of small businesses close in the first four years. Small businesses in accommodation, cafés and restaurants, and communication services have the highest failure rates because of the competitive nature of these industries:

• 69% of businesses started up in 2001 survived at least two years.
• 52% of businesses begun in 2001 were still operating in 2005.

Small businesses in finance and insurance, mining and electricity, gas and water supply have higher survival rates.

Small business owners with a set business plan have the best chances of making their businesses work

Small business owners will have more success if they:

• research and develop their business plan thoroughly before setting up
• keep a simple core business strategy and stick to it
• set up effective and efficient processes in their business so things run smoothly and consistently
• have a back-up plan with a strategy in place and ready to action in case the business hits turbulent times 
• understand how to advertise and market their business cost-effectively
• understand how to manage cashflow.

Business mentoring a good way to get help when starting up a business

Several business mentoring services are available to help people plan and put together a strategy to successfully start up and run their small business. Business mentors can help small business owners set goals, and give general advice on running a business.

Small business owners are self-employed and most work independently with no employees.

In February 2006:

• 96% of small businesses employed 19 or fewer people
• 87% of small businesses employed five or fewer people
• 63% of small businesses had no employees.

Small businesses are defined as enterprises employing 19 or fewer people.

Most small businesses are found in regions with large urban centres such as Auckland, Canterbury, Wellington and Waikato. However, small business owners can work anywhere in New Zealand, depending on the type of business they want to run.