Originally published in The Canberra Times
By Bruce Billson
The ASBEFO February Small Business Pulse makes it clear that while an interest rate cut may provide some modest relief to financing costs and a slight nudge to consumer demand, the challenging small business operating environment remains in a prolonged tough place.
Over the past quarter, the ASBFEO Pulse small business "health-check" deteriorated a further 0.3 per cent to record a 1.5 per cent decline over the last 12 months, levelling off since sharply declining by some 25 per cent after the end of COVID-era support and substantially below the long-term average.
If you believe, as I do, that small and family businesses are the engine room of the economy, we have lost a cylinder in a four-cylinder engine in the aftermath of COVID.
ASBFEO routinely publishes rigorous, highly regarded and sought-after data analysis and insights to the highest ABS standards and disciplines required by our data custodians and collaborators. In keeping with these highest of standards, the ASBFEO Pulse is a world-leading composite index.
The Pulse calls things as they are, and only by recognising the challenges can we hope to address them. The ASBFEO Pulse is a "real-time" health check that combines actual objective business conditions data, measures of the vital signs and "animal spirits" that drive small-business owners while also accounting for actual business decisions, actions and choices being taken or under active consideration.
That's why the Pulse matters, and is widely cited and heralded by the small-business community and analysts as true to their experience. It is a world-leading combination of non-traditional and traditional data that is an indicator of small-business health. There is growing research on the value of harvesting alternative data such as internet searches to complement traditional sources of information such as official statistics, which gives a more nuanced understanding of the small-business environment.
Alternative data sources can provide the early indicators of changes in the environment and ambition when combined with traditional data and interpreted with subject matter expertise. This is particularly important when conditions are changing rapidly, which traditional sources of information and point-in-time surveys often miss. These sources can also help us "see" those businesses which may not be captured through traditional datasets.
Conditions weak and challenging
Our robust analysis of the extensive data that goes into the Pulse shows that small-business conditions remain weak and challenging.
High business input costs, lengthy payment times and difficulty finding suitable staff continue to weigh down small-business owners and put pressure on margins and profitability. Two in five cases that come to my office involve a payment dispute and it continues to be the biggest issue, with more businesses seeking assistance concerned that their business's customers may have become insolvent. Wary and uneasy businesses are researching safeguards such as trade credit insurance and the Personal Property Securities Register to protect their interests.
I am hopeful that the reduction in interest rates will provide some modest welcome respite and may encourage investment appetite.
The ever-resilient small-business owners are already researching financing for capital investment including business vehicles and equipment. Small-business owners are also busy comparing costs of using personal loans to fund their business and using personal assets to secure finance. It is another sign of how owning a small business is so much more than a job, and how interwoven business and personal interest can be and present additional pressures.
Research into alternative funding sources, such as crowdfunding and venture capital, has also increased. This is noticeable in startups and for small businesses seeking to invest in sustainability initiatives.
The industries with increased growth
The Pulse highlights growth in inquiries about starting a business has slowed overall but is patchy. We have published how the rate of conversion for a non-employing business taking on its first employee is the lowest it has been since the ABS started collecting this data series in 2007.
Interest remains high in industries that facilitate home-based work such as daycare, freelancing and online gaming. The transport, postal and warehousing industry had the highest growth in business numbers over the last year. This is likely to continue, with inquiries about starting a delivery/fulfilment business in this industry remaining high.
The Pulse is one of the reasons ASBFEO was a recipient of the prestigious International Council for Small Business Lighthouse Award for 2024-2025.
Among global peers, including the US Small Business Administration, ASBFEO was recognised for our dedication to developing and implementing impactful programs, influencing and advocating for better policies, and advancing research and innovative solutions that create a lasting positive efffect on our small and family business community and beyond.
The ICSB Lighthouse Award identifies ASBFEO as a guiding beacon and source of stability, hope and support for micro, small and family businesses and enterprising women and men during challenging times.
The international recognition of ASBFEO reflects our focus on celebrating those driven and courageous women and men who may not be "seen" in traditional datasets. They may be early-stage or unseen "side-hustle" business builders, people from CALD backgrounds or Indigenous communities who aspire to bring their small business dream to life.
Encouragingly, 35 per cent of small businesses are owned by women which is double the rate in the 1970s. And we are seeing more new businesses being created by women who are finding solutions to everyday problems, sharing their ideas and building a business from their ingenuity and willingness to "have a go".
One in three small businesses are also run by people who were born overseas. Our culture, local business communities, and, in fact, our communities more broadly, are enriched by their presence.
Small-business owners are often driving forces in their local communities, and they are more likely than the general population to be volunteers.