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Why Small Businesses Are the Backbone of the Australian Economy

It’s easy to assume that big businesses dominate the Australian economy, the reality, however, is a little different. Small companies play a larger role than most people initially think and the numbers back this up. Think about it, you probably know someone (perhaps even yourself) who runs a small business, and you almost certainly know someone who works for one. People just like them are working every day to serve their communities, create change and drive innovation all across the nation.

I’ve been working with small businesses for decades and can say with confidence that they are the backbone to the Australian economy and spirit. And, technology and deregulation continue to make it easier to start a business. With barriers breaking down and allowing people to ‘have a go’, the influence of small businesses will surely increase. With this in mind, let’s take a look at a few of the ways small companies are such an essential component of the Australian economy.

Small Companies Create More Jobs

It’s true! Collectively, small businesses in Australia hire more people than any other employer type. Employment is a driving force of the economy, and SME’s are the engine. With the big banks dominating the financial sector, it’s probably one of the only industries where small businesses aren’t the main contributor to employment.

“Small businesses in Australia hire more people than any other employer type.”

According to the RBA (excluding the finance sector), SME’s are responsible for half of all hires in the country. That’s significant, and I believe it will only continue to increase. New businesses are continually challenging the dominance of multinationals in new and creative ways, and they need skilled employees to help them do it.

Small local businesses are also known to be better hirers, here’s my rant about a recent situation I had with a global fast-food giant…


There’s a LOT of Small Businesses

Now, this probably isn’t too surprising when we take a look at the sheer number of small businesses that exist. As per the ABS, there are over 2.3 million businesses active in 2019. The largest contributing industry was the construction sector, and 97% of all companies had less than 20 employers. That’s almost one SME for every ten people!

They Are the Heart of Innovation

For a company to be competitive in a modern economy, it’s no longer good enough to rely solely on ‘economies of scale’ or regulation protecting you from new entrants. Increasingly companies are being forced to adapt and innovate at an increasing rate to avoid being disrupted by new entrants. The internet and improved international mobility of products, resources and information have reduced the difficulty in building and executing new ideas. These new entrants are much more likely to be small companies, such as agile startups that see an immediate opportunity to solve problems and add value.

“Small businesses are the primary vessel for new ideas to come to life and make a difference.”

In an economy that ranks only 93rd in economic complexity, evident in our massive mining industry and big bank oligopoly, new ideas and diversity are essential to future growth. Pleasingly, Australia has one of the highest rates of entrepreneurial activity in the world, again demonstrating that small businesses are the primary vessel for new ideas to come to life and make a difference to people all across Australia.

Smaller Companies Carry Less Debt

Interestingly, smaller businesses are less likely to carry external debt than their larger counterparts. This phenomenon may be due to two reasons, primarily that small companies are investing their resources into growing their business where they can and are wary of any additional financial pressure. Secondly, it has been increasingly difficult for small companies to access funding when they DO need it. To succeed, these companies must have access to the funds they need to prosper. Fortunately for those who have struggled to get sufficient business credit in the past, it’s looking to get a little bit easier in 2020. You can read more about this in our recent blog.

They Challenge to GROW into Tomorrow’s Leaders

Many small businesses will not stay that way forever – from little things, big things grow. The Australian economy is in desperate need of large-scale disruption to compete in the increasingly globalised international market. Small businesses are the best positioned to fill this role. They will also continue to push their larger, entrenched competitors to innovate and improve.

If you’re a small business looking to make your mark, there are many options to get you funded for success. Business loans, debtor finance and lines of credit are some ideal solutions for business looking to secure their cash flow. Get in touch today if you’d like to discuss the best options available to you and your business

All the best for your week in business.