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Why do so many HR consultancies close within 5 years?

Explore the best and worst places in the UK for HR leaders to open consultancies. From unexpected cities like Sunderland and Mansfield where businesses in the industry are thriving to areas with less favourable prospects like Leicester.

Starting your own HR consultancy, recruitment agency, or employee learning and development service might seem like a surefire path to success. Human resources play a crucial role in any business, and many leaders are turning to experts with years of experience to handle these functions. However, the success of your venture can vary depending on the location.*

What’s the Success Rate for HR Companies?

Maintaining a strong company culture and values is essential for HR professionals. But it’s equally important for HR consultancies to embody these qualities themselves. Failure to do so may result in their services appearing inauthentic and irrelevant. Authenticity not only fosters a sense of belonging among employees but also strengthens relationships with clients.

You may have heard that over half of new businesses fail within the first few years. The research confirms that out of 17,019 HR companies established in the last five years, 6,416 have sadly closed their doors, whether through administration, liquidation, or dissolution. This means that approximately 2 in 5 HR companies shut down within their first five years, which offers more promising odds than the general statistic that gets thrown around.

The Best Cities For New HR Companies – Did Your City Make the List?

Location significantly influences a company’s success, affecting factors such as earning potential, expenses, and growth opportunities. Here are three cities where new HR companies are flourishing.

1. Mansfield and Sunderland

These cities boast the highest success rates for new HR companies, with approximately 86% of ventures remaining operational.

2. Ipswich

With a success rate of 73.2%, Ipswich ranks second on our list. Out of 41 HR businesses established in the last five years, only 11 have closed down.

3. Crawley

Ranking third, Crawley has a business survival rate of 72%, making it an attractive location for HR consultants.

The Worst Cities to Open an HR Company

On the opposite end of the scale, some cities present challenges for new HR consultancies. Here are the cities with the highest failure rates.

1. Leicester

With a failure rate of 79%, Leicester is the least favourable city for HR companies. Out of 445 companies established, 350 have ceased operations.

2. Hull

Hull follows closely behind with a 56% failure rate. Of the 34 HR companies launched between 2018 and 2023, only 15 remain operational.

3. Swansea

Ranking third worst, Swansea has a business mortality rate of 52.2%.

Charlotte Anderson, Director of Pace, says, “Of course,  authenticity is key in any industry and we always ensure that our clients have strong company cultures and values that their employees and customers identify with.”

“But it can be easy for a lot of consultancies to forget to look internally and make sure they have these boxes ticked themselves,” she adds. “By overlooking these aspects, many consultancies risk their products and services coming across as inauthentic and out of touch with the prevailing climate.”

“When starting out, it can be challenging for new HR consultancies to establish a strong culture and core values. But business leaders today want to partner with HR consultants who align with their company’s vision and contribute to growth,” she says.

“If you are just offering generalist, off-the-shelf services and solutions, your clients will struggle to see the value in partnering with you.”

*Pace HR carried out a study using data from Companies House to assess the success rates of new companies offering human resource services. Read on to find out which cities in the UK offer the best prospects for HR companies.

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