Running a successful french SME is no easy business

The country's economy may be booming but a report out yesterday shows that setting up a new small business in France is still just as risky as it ever was.

The report from the Institut Nationale de la Statistique et des Etudes Economiques (INSEE), France's national statistical office, found that one in two new businesses that are set up in France ultimately fails. The study covered a ten-year period between 1989 and 1998 and over that time the failure rate remained relatively constant.

According to the statistics, small and medium sized enterprises (SMEs) are far more likely to go bust than big companies, with single-person operations having the highest failure rate.

Just under half (46%) of all one-person companies created in France fail within the first three years of opening and almost a quarter (24.4%) don't even make it past the first year, the study found.

The figures are not much more encouraging when it comes to Sociétés a Responsabilité Limitée (SARLs), limited responsibility companies which require at least two partners and are fast becoming the most popular kind of SMEs in France.

According to the INSEE figures a quarter of SARLs cease trading within three years. The failure rate falls to 15% for larger Sociétés Anonymes (SA), which must have a minimum of seven shareholders and start up capital of at least 250, 000 francs (38,112.25 euros).

In other words, the study shows quite categorically that smaller companies are almost always less likely to survive than their larger counterparts. There are a small number of very specific instances where small businesses buck this general trend however.

For the so-called 'regulated liberal professions', such as doctors, lawyers, veterinary surgeons, private nurses and accountants, the business survival rate is very high and on a par with big business.

But normal competition rules do not apply to these sectors. Access to them is strictly limited to suitably qualified people who must study for many years and pass a large number of professional exams before taking up their posts.

But while the INSEE study painted a grim picture of the life expectancy of the average French small business, it did also show that the country's economy does seem to be able to create as many companies as it loses every year. For the past decade the number of companies trading in France has hovered more or less steadily around the 2,350,000 mark.

The balance tipped slightly in favour of company failures during the dark days of the economic recession that gripped France in the early 1990's but has swung the other way again today, with more firms created than going bust.

But while the total number of companies in France has remained relatively constant for ten years, the past decade has seen some major changes in the sorts of firms being set up.

Obviously the biggest single change has been brought about by the advent of the internet and e-commerce, with hundreds of new start-ups being created and going bust on an almost weekly basis at the moment. But other sectors have also seen their fortunes wax and wane during the ten years covered by the INSEE study.

The leather and clothing industry, which has always contained a very high percentage of SMEs, has seen company numbers cut by 36% since 1989 for example.

The wood, paper, textile and wholesale sectors have also shed large numbers of firms over the same period.

On the other hand, the number firms in the research and development industries has increased by 68% or more than three-fold. Other sectors that have taken off in recent years include consultancy, water, gas and electricity, education, sport and recreation.

Meanwhile, the number of small firms in the hotel and restaurant trade, the transport sector and chemists has all remained fairly constant. The report also shows that the small business landscape is changing in France, with more and more people opting to set up SARLs rather than one-person companies.

This change stems in part from government efforts to make it easy to create limited responsibility companies, most notably a plan to reduce the amount of capital needed to set up one of the firms. Under the new initiative, the total amount of money needed to create an SARL will remain 50,000 francs (7,620 euros), but it will possible to spread this sum over a number of years instead of paying it all up front.

One of the main reason's and SARL is more attractive than a one-person company is that, as the name suggests, the owners liability is limited if the firm goes bust.

In a one person company, the owner's personal and business assets are considered to be one and the same thing, which can obviously lead to seriously problems in the event of bankruptcy or other company failures.