Key points
- Australia’s small businesses are suffering, with just under half reporting a loss in the last tax year.
- Rising costs, slowing demand and increasing compliance pressures are to blame.
- The Australian Small Business and Family Enterprise Ombudsman suggests small business owners seek expert advice, practise financial self-care and deepen their digital engagement.
Small business owners are struggling as Australia “sleepwalks into a big corporate economy”, says a leader in the space, though he adds the current market also offers opportunities.
“It’s tough for the vast majority of small businesses at the moment,” says the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Bruce Billson. “Almost half of them [46 per cent] didn’t record a profit in the last full tax year.”
The ASBFEO Pulse index, released in August, revealed the vital signs of Australia’s small business economy, and the picture is not healthy.
The business operating environment has been declining for two years due to rising costs and slowing demand. Conditions have deteriorated by 3.5 per cent over the past 12 months, with around 11,000 Australian small businesses having shut shop over the past year – nominally, a record high.
Similarly, the Australian Chamber of Commerce and Industry’s (ACCI) Small Business Conditions Survey 2024 shows 45 per cent of small businesses considered leaving or closing their business in the past year.
“Small business owners are stressed,” says Billson. “Fewer are considering expansion or innovation. Many are focusing on just keeping the lights on and dealing with financial pressures, resulting in reduced hiring, advertising and product development.
“Small organisations are less able to weather these storms and often lack the market power and dominance to be able to take advantage of changes in the economy and consumers’ preferences,” he says.
Australia’s 2.5 million small businesses are vital to the economy, accounting for 33 per cent of our nation’s GDP and providing jobs for 5.36 million people, or 42 per cent of the private workforce, says the ASBFEO.
Put simply, when the pulse of small business weakens, the entire economy feels it.
The strains of regulatory compliance
The mounting pressure of complex regulatory compliance is adding further strain on small business owners.
“The ATO is adopting a more muscular position than we saw during COVID in terms of recovering tax debts, superannuation contributions and GST returns. Coupled with the intricate demands of the industrial relations system, this poses significant challenges for small businesses, with severe penalties for non-compliance,” says Billson.
The ACCI Small Business Conditions Survey reports 82 per cent of small businesses find red tape significantly impacts operations, with 50 per cent spending more time and money on compliance than a year ago.
Billson adds that not all small businesses are struggling – those in essential markets and digitally adept at handling compliance are faring better – but they remain in the minority.
“We’re still seeing some businesses optimistic about the year ahead, but few expect increased profitability,” he says. “Most are simply hoping for a reversal in interest rate trends that may boost consumer confidence and reduce cost pressures.”
The top opportunities for Australian small business currently
While the ASBFEO checks the health of small businesses, it also identifies growth opportunities. Billson offers three key pieces of advice:
1. Go (more) digital
It’s an ideal time for small businesses to enhance efficiency through technology, including AI and deeper digital engagement, says Billson.
“This simplifies compliance, reduces regulatory stresses and provides operational insights,” he says. “Digital tools also help access new markets and improve financial decision-making.”
2. Seek expert advice
Good advice is crucial, Billson adds, especially because small businesses don’t tend to have compliance departments, HR specialists or legal experts – unlike big corporations.
“Trusted advisors can help structure businesses, find savings and improve viability, guiding owners through challenging decisions,” he says.
3. Look after yourself as a business owner
Business owners tend to pay their employees before themselves, but they need to ensure they’re on their A-game for their business, Billson says.
“They should focus on their financial health, retirement planning, business resilience and contingency planning,” he says. “A healthy business ecosystem requires both operational excellence and owner wellbeing.”
Revitalising Australia’s small business economy
Authorities must make it easier for small businesses, or Billson fears their presence in our economy will continue to decline.
“Back in 2006 small businesses contributed 40% of GDP and employed 53% of those with a private sector job,” he says.
“We’re sleepwalking into a big corporate economy. We need to energise enterprise and inspire Australians to turn an idea into a business that will employ that extra person.”
Here are his policy prescriptions to revitalise small businesses:
- Offer tax discounts for new small businesses.
- Implement supportive, right-sized regulations.
- Include small business impact statements in policies.
- Launch the Prime Minister’s Small Business Awards.
- Create a Federal Small Business and Codes List for affordable legal protection.
- Simplify small business access to government contracts.
- Mandate lowest fees for tap-and-go transactions.
- Ensure accessible and affordable insurance.
- Ban unfair business practices.
- Create a Small Business Commissioner within the Fair Work Commission.
- Standardise small business dispute resolution for digital platforms.
- Recognise prompt-paying businesses with ‘Good Business Pays’ accreditation.
- Enhance digital learning and support for small businesses.
- Create a central resource hub for small business guidance.
Want to learn more about the grants available to small business and the overall small business landscape? Access IPA’s research, Efficacy of Australian Commonwealth Business Grants, conducted in conjunction with Deakin Business School.