Between 2007 and 2009 the Global Financial Crisis (GFC) impacted nearly every industry in Australia with thousands of businesses closing down and many employees losing their jobs. While 2010 marked the beginning of the return to economic prosperity for some, the effects still seem noticeable and business confidence is low, even six years later. Have businesses bounced back to pre-GFC levels of profitability and confidence or are they still struggling? Based on what I’ve seen over the last couple of years I’d say many are still struggling. Every business is different of course, but there seems to be a sense of pessimism among small business owners I talk with. I thought I’d dig up some statistics on the issue.
There are more than two million small to medium sized businesses in Australia, of which almost two-thirds are sole traders and a further quarter has between one and four employees. About 10 per cent, or 200,000, employ between four and nineteen people. The Australian Bureau of Statistics data shows that during the GFC, in the two years between June 2007 and June 2009, more than 638,000 Australian businesses (of all size) stopped operating. Nationwide, there was a 26.4 per cent failure rate in these two years. During this same period small businesses, employing one to four staff, fell from 528,669 to 497,141 resulting in 31,528 smaller operators closing their doors.
Small businesses hit hardest
According to the Reserve Bank, small businesses were hit harder by the GFC than larger businesses in Australia. They have found it more difficult to recover, and business conditions over the last two years have been weaker for them than for larger businesses. Tighter lending requirements since the GFC, by Australia’s major banks, has also disproportionately affected smaller businesses. This has limited spending on plant, equipment, building and other assets. A recent small business survey by the National Australia Bank shows SMEs have been more subdued in their borrowing than the broader business community. It also says that in general employment is disappointing. The survey results also show that the services sector continued to outperform more traditional sectors (except for retail) and that conditions are particularly positive for small businesses in the finance, property, hospitality and health sectors. In contrast, conditions have turned negative for those in wholesale and retail.
Business confidence seems to vary from industry to industry. A 2015 business confidence survey by Sensis showed that the industries that were ‘very confident’ were: Health and Community Services. Those that were just ‘confident’ included the Building and Construction, Finance and Insurance, Cultural, Recreational, Personal Services and the Hospitality industries (Accommodation, Cafes and Restaurants) while those that were ‘not confident’ at all included Manufacturing, Retail Trade, Transport and Storage, Communication, Property and Business Services.
The biggest issues for small businesses
A recent Australian Chamber of Commerce and Industry Small Business Survey highlighted what are currently the biggest issues for small businesses.
• the need to cut down on red tape,
• a need to simplify the tax system which is seen as being too complicated
• compliance with government regulation which is expensive and time consuming,
• a lack of incentives for small businesses to invest.
• make it easier to employ people. Australia is a costly place for small businesses to hire, retain and dismiss staff so when times are tough that means jobs and hours get cut.
It looks like my research backs up my personal observations. Many small businesses are still struggling and, even though some industries are more confident than others, there is a general lack of business confidence. Stricter bank lending requirements has put limits on small business spending and capital investment. Employment rates are low but small businesses want it to be easier to employ people. They also want a simplification of the tax system and a reduction in government red tape. It seems it will take time for small business sentiment to recover, and the return to economic prosperity may still be a while away for some.