The State of Small Businesses In Australia
Introduction
Small businesses are the backbone of Australia’s economy, yet their day-to-day realities are often overlooked. This article explores the current state of Australian small businesses, examining their economic contribution, key trends shaping their operations and the challenges they face—from labour shortages and financial pressures to regulatory hurdles. It also highlights the unique attributes that distinguish small businesses from larger enterprises and offers a critical reflection on their resilience and sustainability. Alongside these structural realities, several key trends are shaping how small businesses adapt and operate in today’s economy. This paper will conclude with a clear understanding of how small businesses operate, the pressures they navigate and the strategies that can support their long-term growth.
Overview of Australian small businesses
Small businesses are the backbone of Australia's economy, comprising 98% of all businesses as of June 2024, with over 2.6 million enterprises (SMEs are the lifeblood of the Australian Economy, 2022). Of these, micro businesses—those employing no staff—make up the largest proportion, with 1.55 million (60%), while small businesses employing 1-19 people account for 955,000 (37%). From June 2021 to June 2022, the number of micro businesses grew by 10% and small businesses by 3% (SMEs are the lifeblood of the Australian Economy, 2022). The same source suggests that New South Wales hosts the largest share of SMEs (Small and Medium Enterprises), accounting for 33% of all small and medium enterprises, as the distribution of SMEs by state generally mirrors population distribution (SMEs are the lifeblood of the Australian Economy, 2022). In terms of industries, small businesses are most concentrated in construction (17%), followed by professional, scientific and technical services (13%) than rental, hiring and real estate services (11%). Despite their significant contribution, these businesses face mounting challenges, including rising operational costs, labour shortages and financial vulnerability. Many SMEs report high risk of insolvency if they lose a major client and nearly half continue to experience ongoing cash flow pressures (SMEs are the lifeblood of the Australian Economy, 2022). Alongside these structural realities, several key trends are shaping how small businesses adapt and operate in today’s economy.
Key Trends for small businesses
Small businesses in Australia are rapidly embracing digital transformation, with increasing adoption of automation, cloud-based tools and outsourced payment systems. Traditional business models are being replaced by innovative approaches that leverage technology to improve efficiency, reduce costs and enhance customer experiences. Glocalisation is also on the rise, as businesses combine a global perspective with local market responsiveness. At the same time, a strong focus on sustainability is influencing business practices, driven by changing consumer expectations and long-term resilience goals (Don’t fall behind: top 5 Australian small business trends of 2024, 2024). However, despite these adaptive trends, many small businesses continue to face persistent and complex challenges that test their resilience.
Challenges faced by small businesses
Australian small businesses face multiple challenges, particularly in recruiting skilled workers. In 2022–23, small businesses had a job fill rate of 52%, significantly lower than 65% for large businesses (Challenges for Australian small businesses, 2024). This reflects a smaller pool of qualified applicants, longer advertising periods and a higher proportion of lower-skilled positions. Jobs and Skills Australia also suggests that Skills shortages are more pronounced in regional areas, with fill rates of 59.4% compared to 66.7% in metropolitan areas, highlighting geographic disparities in workforce availability. Financial pressures from rising energy, rent, insurance and wage costs further squeeze profit margins, while administrative and regulatory burdens add to the strain (Challenges for Australian small businesses, 2024). These challenges highlight the critical role small businesses play in the Australian economy, a role that is becoming increasingly pressured.
Role of small businesses in the Australian economy
Small businesses are the cornerstone of Australia's economy, contributing approximately one-third of the nation’s GDP during 2021–22 and providing employment for around 5.1 million people (Value of small business to economy tops half a trillion dollars, 2023). They also support 42% of all apprentices and trainees in Australia, highlighting their critical role in skills development. This substantial contribution underscores the importance of supportive policies to ensure the resilience and continued growth of small businesses. Understanding this role is further enhanced by examining the defining characteristics of small businesses themselves.
Attributes of small business
Small businesses are generally defined by their limited size, typically employing fewer than 250 people, and operating on a smaller financial scale (Matejun, 2017). They are characterised by resource constraints, centralised decision-making by owner-managers, intuitive management styles and low levels of organisational formalisation. Financing is largely sourced internally and SMEs often maintain independent ownership, high autonomy and simple communication structures. Additionally, they tend to focus on niche and localised markets with specialised offerings, which distinguishes them from larger enterprises (Matejun, 2017). These attributes not only provide SMEs with flexibility and adaptability but also contribute to the structural vulnerabilities they face in today’s complex business environment. Understanding these characteristics provides essential context for reflecting on the challenges and resilience of Australian small businesses.
Critical reflection on the state of Australian small businesses
Australian small businesses are vital to both economic performance and community wellbeing, driving grassroots innovation, regional development and employment (Value of small business to economy tops half a trillion dollars, 2023). Yet their long-term sustainability is increasingly threatened by systemic vulnerabilities.
Financial fragility remains a key concern. Many SMEs operate with limited financial buffers and are highly exposed to the loss of major clients (SMEs are the lifeblood of the Australian Economy, 2022). Their reliance on internal funding and narrow customer bases makes them more vulnerable than larger firms (Matejun, 2017).
Labour shortages, particularly in regional areas, further compound this fragility. A job fill rate of just 52% among small businesses reflects challenges in workforce attraction and skill alignment (Challenges for Australian small businesses, 2024). Without targeted support, these mismatches are likely to persist.
Administrative and regulatory burdens also weigh heavily on owners, with nearly half considering closure due to rising costs and red tape (Challenges for Australian small businesses, 2024). Streamlining compliance processes could help ease these pressures and allow small businesses to focus on growth and innovation.
Despite these challenges, small businesses display remarkable adaptability. The adoption of automation, cloud technologies and outsourced systems demonstrates a forward-looking approach to improving efficiency and maintaining competitiveness (Don’t fall behind: top 5 Australian small business trends of 2024, 2024).
While resilience remains a defining feature of the small business sector, targeted policy support, financial assistance and workforce development initiatives are essential to transform this resilience into long-term, sustainable growth.
References
Challenges for Australian small businesses. (2024). Australian Government, Jobs and Skills Australia. https://www.jobsandskills.gov.au/publications/skills-shortage-quarterly-march-2024
Don’t fall behind: top 5 Australian small business trends of 2024. (2024). Small Business Connections. https://smallbusinessconnections.com.au/dont-fall-behind-top-5-australian-small-business-trends-of-2024
Matejun, M. (2017). Characteristic features of small business and large firms: An empirical comparative study. Journal of Administrative and Business Studies, 3(4), 192-203. http://www.tafpublications.com/gip_content/paper/Jabs-3.4.4.pdf
SMEs are the lifeblood of the Australian Economy. (2022). Australian Banking Association. https://www.ausbanking.org.au/small-business/#:~:text=Download%20Report-,SMEs%20in%20Australia,cent%20from%20812%2C734%20to%20931%2C791.
Value of small business to economy tops half a trillion dollars. (2023). Australian Small Business and Family Enterprise Ombudsman. https://www.asbfeo.gov.au/sites/default/files/2023-08/July%20newsletter%20-%20Value%20of%20small%20business%20to%20economy%20tops%20half%20a%20trillion%20dollars.pdf