Australia set for small business boom, with younger and more diverse founders to start 3.5 million new businesses by 2031

Australia is projected to gain 3.5 million new small business by 2031, with a massive influx of construction, professional services, and transportation firms helping to add $60 billion to the annual GDP in a decade’s time.

A new report from accounting and business services software provider Xero, released Tuesday, states a pandemic-era boom in new business signups, technological progress, and a younger, more diverse class of entrepreneurs will support a million new jobs by 2031.

Those new firms are slated to provide 3% to the national GDP in 2031, the report states.

Best-case conditions could see as many as 4.2 million new small businesses registered over the decade, Xero says, further boosting the economic impact of those fresh ventures.

The findings suggest an optimistic future for small businesses, micro businesses, and sole traders, according to Joseph Lyons, Xero’s managing director for Australia and Asia.

“I think there’s an enormous amount of opportunity and we should feel confident that Australia, despite all of the challenges of the pandemic, is incredibly resilient,” Lyons told SmartCompany.

“And that our community has confidence to go out and start their new businesses at the rate that they are.”

The changing face of small business owners

Drawing on ASIC data and analysis from Accenture, the Xero report states small business registrations are rising at an unprecedented rate, climbing 34% from 225,000 in 2019 to more than 300,000 in 2021.

via Xero

The pandemic looms large over those figures. The healthcare sector saw the equal biggest uptick in small business registrations between 2019 and 2021, with sign-ups growing 51%.

‘Other services’, including beauty specialists, hairdressers, and fitness instructors, also saw business registrations climb 51%, suggesting many professionals whose workplaces were impacted by COVID-19 lockdowns chose to strike out on their own.

Sluggish wage rises, the growth of work-from-home opportunities, favourable lending conditions, and technological advancement all played a role in that growth, Xero says.

And as trading conditions changed, so to did the makeup of new business founders.

Small business leaders are increasingly under the age of 35, female, and from a more diverse cultural background than in years past, the data shows.

Recent changes to the make-up of Australian small business founders “can only benefit our economy moving forward,” Lyons said.

“I think it’s really encouraging to see that we are seeing an increase in women, and those that have been born overseas, taking the leap to start their own business and having the confidence to do so.”

Construction the big winner by 2031

In the long-term, Xero expects the construction sector to the big winner. The firm predicts 624,000 new business registrations in the sector, reflecting Australia’s demand for housing and infrastructure projects.

Those new firms alone are projected to contribute $10.3 billion to the annual GDP in 2031, Xero says.

Professional services firms come in at second, gaining an estimated 485,000 businesses over the next 10 years.

Transportation — buoyed by the rise of the gig economy, and a tide of sole traders operating for major platforms — is expected to grow by 417,000 firms.

via Xero

Despite the proliferation of remote work and the promise of decentralised employment, Xero data shows the new roles will largely align with today’s population centres.

New South Wales, Victoria, and Queensland are set to enjoy up to 80% of the total economic impact of those new firms in 2031, the report suggests.

Technology billed as essential, regardless of industry

Regardless of the precise sector or location, Xero expects technology to hold an increasingly important role for the small business community moving forward.

38% of small businesses founded in the last two years consider technology to play an “essential” role in their operations, compared to 26% of firms aged ten years and above.

Just 5% of those newer small businesses consider technology to play “no real role”, compared to 14% of the older firms.

“Younger people, particularly when you look at their adoption of technology, emerging tools, and innovation, I think that they are more willing to bring about new processes and new tools into their businesses,” Lyons said.

“Our hope and ambition is that we would see that those businesses that do adopt technology are more resilient, which means that you will see businesses surviving longer and thriving as they emerge out of the pandemic as well.”

The Coalition government’s promise of a 20% bonus tax deduction for small businesses investing in tech upgrades and training — a policy now backed by Labor — should also encourage new firms to bolster their digital presence.

Bipartisan support for the tax break “bodes well for the future of small businesses that do adopt technology,” Lyons said, “because I think the government can certainly see that it means that they do perform better and ultimately, can contribute back to the economy.”