Originally published on Kochie's Business Builders
By Bruce Billson
Small business is a big deal, but sadly not as big as it used to be. Yes, it’s still the ‘engine-room’ of the nation, contributing much to our communities, employment opportunities and the Australian economy. But there is an alarming trend we need to be aware of, writes Bruce Billson, Australian Small Business and Family Enterprise Ombudsman.
Small business is rightly celebrated for generating 33 per cent of our nation’s Gross Domestic Product and providing jobs for 5.36 million people – 42 per cent of the private workforce.
But in 2006, small business contributed 40 per cent of GDP and employed 53 per cent of those with a private sector job.
This is a worrying trajectory. We are sleepwalking into a big corporate economy.
We are not alone, but that doesn’t mean we should be unconcerned.
The Washington Post recently reflected on the pride America takes by being built on the back of small business, but posed the question: “is this now a myth due to the influence of ‘corporate America’?” In the US businesses with fewer than 100 employees have struggled, while those with over 10,000 employees have gained significant ground.
Here, right now, businesses are less likely to make the leap of employing their first employee. Only 3 per cent of self-employed businesses became an employing business in 2023-24, which is a record low rate from the start of this ABS time series on 1 July 2007. The latest ABS stats also point to a decrease of 8.1 per cent in payroll jobs in small business over the year, with increases in both medium and large business – 7.1 per cent and 6.3 per cent respectively.
Rising input costs and frugal customers continue to challenge margins, profitability and viability. The ‘business of running the business’ is getting ever more demanding. Small and family business owner battle through increasing red tape, greater and more complex compliance obligations, cashflow concerns, digital impacts, cyber threats, poor payment times and an ever-changing business landscape.
Business owners should be reassured that at times of challenge, dispute or distress, there is help available. ASBFEO is a key part of an extensive network of support that includes State Small Business Commissioners; Small Business Debt Helpline; New Access for Small Business Owners (NASBO) for emotional wellbeing; Australian Financial Complaints Authority; Telecommunications Industry Ombudsman; Digital Solutions; Small Business Cyber Resilience Service; Cyber Wardens program; and numerous Federal regulators ready to help. And of course, the network of trusted advisers and industry associations that also provide so much support and guidance.
Small business owners’ identities are interwoven into their business and the stakes are much higher than just a job. Many people have invested everything – a lifetime of blood, sweat and tears and often the family home to help secure funding for the business.
My message to small and family business owners is that when time are tough, you are not on your own and help is within reach.
For the growing number of businesses seeking assistance from ASBFEO, our recently released Quarterly Report shows that concern about cashflow and payment disputes as the most significant.
Requests for assistance from small businesses facing insolvency or concerned about a business customer potentially not being able to make payments that are due, have also increased by 27 per cent in the December 2024 quarter. Distressingly, around one in ten small business owners experiencing financial hardship who contacted us for help this quarter told us their family home was at risk.
There is a noticeable uptick in small business disputes with ‘fringe’ financiers operating outside the AFCA financial complaints resolution services. This highlights the financial pressure on small businesses trying to keep their heads above water and that many are considering less conventional ways of sustaining cashflows, often accompanied by eye-watering interest rates and penalties.
These things amplify what is at truly at stake for small and family business owners, and commensurate emotional challenges. We have continued to observe a hardening of position and greater distress among parties to disputes during the December 2024 quarter.
It’s becoming harder even for seasoned small business operators to navigate the business environment. As well as the challenging economic conditions, regulatory requirements are constantly changing, and the complexity is increasing. We are seeing more and more requests for our help from small business owners who have been in business for at least 4 years. Small businesses that have been operating for more than 10 years make up nearly a third of Small Business Debt Helpline cases.
Queries about regulatory requirements remain high, particularly compliance as an employer, insurance, and local council regulations. Small businesses’ requests for our help and information in these areas reflect the rapidly changing, complex regulatory environment. Recently a small business owner contacted the ASBFEO Assistance team for information on superannuation. They had been told that there were new superannuation guarantee requirements, but they did not know where to get useful information. We were able to refer this business owner to a range of resources to help them understand the new superannuation requirements.
It is well known that Australia has some of the most complicated workplace laws in the world and there are many examples of even the biggest companies, government departments, universities and institutions struggling to comply. But having access to specialised legal, HR and payroll resources should not be a prerequisite to operating a business.
Suffocating compliance obligations, needlessly complex regulatory requirements and disproportionate red tape duties stifles entrepreneurship and displaces effort that should be going into the business’s success and the employment opportunities, improved livelihoods and enhanced the economic vitality of our communities it enables.
That’s why we are urging a ‘right-sized regulation’ renaissance.
Where the disciplines of minimum effective intervention, clear and transparent policy objectives, rigorous and public regulatory impact assessment processes and genuine consultation and engagement with the intended small business respondents are all part of a better way of formulating policy, programs, laws and regulations.
This can help reduce overbearing regulatory burden and is something governments need to do as part of their contribution to reduce the ‘headwinds’ small businesses are contending with.
But reducing headwinds alone is not enough. Decisive action is needed to put the ‘wind in the sails’ of small businesses, to improve the operating environment and incentives, and to ensure enterprising women and men have the best possible opportunity to succeed.
With an election just around the corner, I am urging political leaders to commit to a range of positive actions to ‘energise enterprise’. Our ‘14 steps’ have been really strongly supported and I encourage any business owner talking to elected MPs (and aspiring candidates) to explain the challenges you’re facing and how there are practical measures that could help.
The operating environment for small and family businesses can and needs to be better if we are to arrest the decline of this vital ‘engine room of the economy’. Time poor small and family businesses, and their representative organisations are already stretched. But now is a crucial time to be engage – to make sure support for small business is front of mind, that specific commitments are made to improve the trading environment, and to ensure that small business interests and considerations are so much more than an after-thought.