Start-up numbers falter as closures take their toll: ABS report

More than 30,000 small businesses shut up shop between the 2007 and 2010 Federal elections, while new business entry rates declined, according to the Australian Bureau of Statistics.

According to the ABS, there were 528,669 small businesses – employing one to four employees – operating just prior to the 2007 election.

In the lead-up to the 2010 election, that number had fallen to 497,141, a decline of 31,528 businesses over this period. In terms of start-ups, the entry rate for new businesses was 14.4% in 2008-09, down from 15.3% in 2007-08.

The ABS says the growth rate in the number of businesses fell by 1% from 2007-08 to 2008-09.

This is in spite of the fact that Australia’s gross domestic product over the corresponding periods grew by 3.7% and 1.2% respectively, while Australia’s population grew by 1.7% and 2.1% over the same periods.

“The negative growth rate in the number of businesses during the financial year to June 2009 was mainly due to a decrease in entry rates,” the ABS says.

“The business exit rate remained steady during the same period, recorded at 15.4% for both the 2007-08 and 2008-09 financial years.”

The ABS says of the 2,074,247 businesses operating in June 2007, 84.6% were still operating in June 2008, but only 73.6% were still operating in June 2009.

Of the 548,713 businesses which exited to June 2009, 58% exited during 2007-08 and the remaining 42% exited during 2008-09.

Meanwhile, of the 316,867 business entries during 2007-08, 71.5% were still operating in June 2009.

In addition, the survival rate for business entries during 2007-08 was higher for new employing businesses, at 81.9%, compared to new non-employing businesses, at 66.6%.

Survival rates for business entries were highest for those businesses with annual turnover of $2 million or more, at 85.3%, and lowest for those businesses with annual turnover of zero to less than $50,000, 65.6%.

Peter Strong, executive director of the Council of Small Business of Australia, says he’s not surprised by the figures, citing excessive red tape and limited access to finance as key reasons for the demise of so many small businesses.

“[The small business sector is] in crisis… The fact that we’ve gone backwards in the number of businesses is the indicator of that,” Strong says.

Strong is calling for a national strategy to rescue the small business sector.

Announcing the Federal Budget last week, Treasurer Wayne Swan outlined a range of initiatives for small businesses, including a $700 million reduction in tax instalments paid under PAYG and an early reduction in company tax rates.

Despite Swan’s efforts, shadow minister for small business Bruce Billson says the small business sector is under siege.

“The global financial crisis was particularly harsh on micro businesses where they didn’t have the depth of balance sheet or the deep pockets to engage in heroic discounting just to keep the doors open,” Billson says.

“With that kind of heavy discounting mentality going on, a small business chasing that kind of business strategy has a use-by date that’s not too far away.”

“They have far more stringent controls placed on finance. And as you know, finance is the oxygen for these businesses.”