Small Business

Small Business

Overview of Small Business

Definition of a Small Business

Small businesses are businesses in the private sector which employ less than 20 people. Nearly half do not employ other people. They are in all industries, but agricultural businesses are not normally included in small business statistics. Small businesses are generally considered to have the following characteristics:

they are independently owned and operated;

they are closely controlled by owners/managers;

decision-making is principally done by the owners/managers;

the owners/managers contribute most if not all of the operating capital.

(Source: ABS: Small Business in Australia 2001 [Catalogue no. 1321.0])

Small Business Categories

The Australian Bureau of Statistics (ABS) uses the following classifications:

Small businesses. These are businesses which have less than 20 employees. They include:

- non-employing businesses, in which one person or two or more partners work, but there are no employees. People who work in these businesses are referred to as "own account workers".

- micro businesses, which employ less than five people, including non-employing businesses.

Medium businesses. These are businesses which have between 20 and 199 employees.

Small and medium enterprises (SMEs). These are all businesses which have less than 200 employees.

Size of the NSW Small Business Sector

The most recent data available from the Australian Bureau of Statistics providing reliable information on the number and size of businesses in Australia is ABS Catalogue No. 1321.0 for the period 2000-2001.

In 2000-01, there were 372,500 small businesses in NSW. This was 33.2% of all the small businesses in Australia and was more than in any other State.

Small businesses made up 97% of all the businesses in NSW. 183,500 NSW small businesses, or 49.3%, were non-employing, and 84.6% of small firms were micro businesses.

In 2000-01, 1,083,400 people worked in NSW small businesses. This was 33.2% of all the people working in small businesses in Australia and again was more than in any other State.

47.9% of people who work in NSW businesses are in small businesses. 219,600, or 20.3%, of people who worked in NSW small businesses were own account workers (which includes people in non-employing partnerships), 91,000, or 8.4%, were employers and 772,900, or 71.3%, were employees.

NSW Small Business by Location

66% of NSW small businesses are in Sydney and the Central Coast (Gosford-Wyong) region, and the remaining 34% are in the other regions of NSW.

Of those in Sydney, 27% are close to the centre of the city (in the Inner Sydney, Inner Western Sydney, Eastern Suburbs and Lower Northern Sydney area) and 30% are in the rest of Western Sydney.

Small businesses in regional NSW are spread widely throughout the State. In 2000, there were over 120,000 of these businesses, an increase of around 34,000 in the five years from 1995, and they provide direct employment for approximately 300,000 people.

20% are in the Hunter-Newcastle region, 20% in the Richmond-Tweed and Mid North Coast area, 19% in the Illawarra-Wollongong region and 18% in the Northern, Far West, North Western and Central West of the State.

NSW Small Business by Industry

Small businesses are prevalent in all industries in NSW. The table below shows the number of small businesses in various industry sectors in 2000-01.

Industry Sector Number of Businesses

Construction 80,500

Property and business services 74,400

Retail trade 51,600

Manufacturing 29,000

Health and community services 28,100

Personal and other services 23,100

Transport and storage 21,800

Wholesale trade 17,700

Cultural and recreational services 12,200

Accommodation, cafes and restaurants 11,800

Communication services 7,700

Education 7,700

Finance and insurance 6,300

Other 600

In 2000-01, the sectors which had the highest employment in small business were property and business services (213,600 people, or 19.7%, of all small business employment), retail trade (185,900, or 17.2%) and construction (179,100, or 16.5%).

In the construction sector 84.3% of all employment was in small businesses. In personal and other services it was 68.3% and in property and business services 54.3%.

Characteristics of NSW Small Business Operators

In June 2004 there were 411,100 male and 168,000 female small business operators (i.e. sole owners, partners or working directors of small businesses) in NSW.

This meant that 71% of operators were men and 29% women. 9.9% of NSW small business operators in June 2004 were aged under 30, 59.9% were between 30 and 50 and 30.2% were older than 50.

In June 2001, small business operators in NSW had the following educational qualifications:

• 22.1% had achieved an Advanced Diploma or above;

• 38.6% had gained a post-school Certificate;

• 39.3% had school-level qualifications only.

31% of NSW small business operators in June 2004 were born overseas. Over the previous 12 months the number of overseas-born operators decreased by 2.3%.

In June 2004, 30.1% of small business operators worked less than 35 hours per week in the business. The remaining 69.9% of operators running their business on a full-time basis represents 45% of operators working 35 to 50 hours per week, 20.6% working between 51 and 75 hours per week and 4.3% working over 75 hours per week.

Small Business Growth in NSW

The number of small businesses in NSW grew by 65,500, or 21.3%, between 1994-95 and 2000-01. This was 3% more than in the rest of Australia.

Moreover, 99.4% of the growth in the number of businesses of all sizes in NSW was in small business. During the same period, the number of people working in small businesses in NSW grew by 149,600, or 16.0%.

Small businesses provided 70.4% of the increase in employment in all NSW businesses between 1994-95 and 2000-01, whereas for the whole of Australia the figure was only 45.3%.

The growth in the number of small businesses in NSW in the period from 1994-95 to 2000-01 was greatest in the following industry sectors: construction (which had a 41% increase in the number of small businesses); health and community services (33.8%); transport and storage (31.3%); education (28.3%); and property and business services (28.1%).

Communication services was a new category in 2000-01 with 7,700 small firms. The increase in employment by NSW small businesses in the same period was highest in construction (which saw a 41.4% growth in employment), property and business services (29.3%), health and community services (26.4%), transport and storage (25.8%), and personal and other services (22.1%).

In 2000-01, there were 10,900 people working in the new category of communication services.

(Source: ABS: Small Business in Australia 2001 [Catalogue No. 1321.0])

Significant Developments in Small Business in NSW

Home-based Business

Home-based businesses are a strongly growing group within the small business sector. The ABS' definition of a home-based business encompasses all those businesses where the operator's home is also the business address.

Business owners working in their business from a home office, such as graphic designers, as well as those who deliver their service at the customer's premises, such as builders, are captured by this definition.

In June 2004, there were 282,400 businesses in the State which operated from or at a home address, representing a significant increase of 8.8% from the previous year. This involved a total of 343,800 operators.

Just over 26% of the State's home-based businesses are run by women and 57.8% of women business operators work less than 20 hours per week in their business. This result reflects a trend towards self-employment as an option for financial independence in dual-income households, or in situations where a family is being cared for by the home-based parent.

Small Business

The widespread use by small firms of computers and the Internet continues. In June 2004, 70.7% of NSW small businesses used a computer and 61.6% had access to the Internet. Computer use is more prevalent amongst employing business. 83% of businesses with employees made use of computers, in contrast to 60.3% of non-employing businesses.

In June 2004, the most common uses of the Internet by NSW small businesses were for communication by email (54% of businesses connected to the Internet) and for research (51.1%).

Although only a minority of small businesses in NSW use the Internet for e-commerce, an increasing proportion are doing so. For example, in June 2004 32.7% of small firms were making or receiving payments on the Internet, compared to 17.9% in June 2001 or just 9.8% in November 1999.

Exporting

In the year 2002-03, NSW exported merchandise to the value of $20.2 billion. This was 17% of Australia's total merchandise exports (including re-exports) for the year.

In 2002-03, NSW exported services worth $14.5 billion, which was 44.5% of Australia's total services exports in that year. In the five years to 2002-03, Australian goods exports have grown in dollar terms by 3.1% and services exports by 6.4%.

Moreover, in recent times, Australian exports, including those from NSW, have become highly diversified according to both country of destination and industry sector. For example, in 2002-03, 41.8% of exports from NSW were services, 17% were manufactured goods, 28% were primary products (agricultural and mining products) and 8% were other goods.

While export revenue is dominated by large businesses, most exporters, around 80%, are small firms and they are expected to be the main source of future growth in exporter numbers. A Federal Government report released in April 2002 by the Australian Trade Commission has found that: "micro and small businesses are now starting to enter the world market more aggressively ... (and) are growing faster in numbers and their overall revenue contribution is increasing."

The Austrade report forecasts that, in the future, new exporters will be small in size, knowledge-based, have been in business only a few years and will be located in both small towns and capital cities.

Small Business Closures

Despite what is commonly thought, relatively few small businesses fail. Over the two-year period 1994-95 and 1995-96, an average of 23,200 small businesses, or 6.1%, ceased operating in Australia.

Less than 10% of these closures was due to bankruptcy proceedings (in the case of unincorporated businesses) or companies being liquidated. The other businesses closed down for reasons such as the owner retiring, seeking a different lifestyle or dying.

Moreover, as some small businesses cease, others start up. The failure rate of Australian businesses fell significantly during the 1990s. It is estimated that in 1999-2000, there were 3.6 failures per 1,000 enterprises, which was one-third of the rate in 1991-92. This decline was primarily the result of fewer company liquidations.

Why Do Many Small Businesses Fail?

Contributing factors could be!!!!

Overexpansion. Wanting to be the first to market with a new product, taking on added overhead, and the need to demonstrate revenue growth to anxious investors can all induce businesses to overextend themselves financially. Rather than head down this path, start with realistic goals and allow yourself to grow as needs dictate. Let your revenue dictate your hiring practices.

Poor capital structure. Look at the businesses that fail and you'll find that many of them took on too much debt. Learn to pay strict attention to your finances and keep careful records of all money coming in and going out. Budget for the future.

Overspending. Many businesses spend their capital before cash has begun to flow in at a positive rate. This often happens because of misconception about how business operates. If you're just starting out in business, seek advice from perhaps an accountant or even nominate a mentor.

Lack of reserve funds. Failing to prepare for volatile markets and uncontrollable costs like energy-rate increases, materials, labour, natural disasters, and the like is another top reason many businesses fail. Make sure you protect your investment and keep enough reserve cash to carry you through market downtrends and seasonal slowness.

Bad business location. Don't let a cheap lease tempt you into opening your doors in the wrong location if your intuition is telling you it's not right. Key factors to consider include competition (how many other similar businesses are located nearby?) and accessibility (is the area well served by freeways, public transportation, and foot traffic?).

Poor execution and internal controls. Poor customer service, accounting controls, and overall employee incompetence can all combine to have detrimental affects on a business. Make sure you and your employees place a premium on customer service to generate repeat business, establish protocols for how tasks should be accomplished, and remain continually in the know on all things accounting.

An inadequate business plan. Your business plan is your blueprint for success. A well-thought-out business plan forces you to think about the future and the challenges you'll face. It also forces you to consider your financial needs, your marketing and management plans, your competition, and your overall strategy for coming out on top.

Failure to change with the times. The only constant in business is change. The ability to recognize opportunities and be flexible enough to adapt to changing times is a key ingredient to surviving and even prospering in the toughest business climate. Be diligent and to generate new interests and areas of expertise.

Ineffective marketing and self-promotion. Customers can't walk through your front door if they don't know you're there. Learn how to cost-effectively advertise and promote your business.

Underestimating the competition. Consumer loyalty doesn't just happen; you have to earn it. If you don't take care of your customers, your competition will. Watch your competition as closely as you do your own employees.