New business launches are slowing, as COSBOA draws attention to small business resiliency

The number of new businesses entering the Australian economy has slumped for three consecutive quarters, as the Council of Small Business Organisations Australia (COSBOA) suggests would-be entrepreneurs are biding their time to launch a new enterprise.

Data released by the Australian Bureau of Statistics (ABS) shows 106,534 new businesses entered the economy in the March quarter of 2023, after a steady decline from the June 2022 quarter, where just over 139,000 new businesses were established.

Some 95,185 businesses exited in the March 2023 quarter — a more encouraging figure compared to December 2022, where 150,282 left the economy, but a more significant decline than in March 2022, when 76,581 exits were recorded.

Net growth experienced in March 2023 was 11,349 businesses or 0.4%.

Source: ABS

The data was collated in a fresh quarterly report from COSBOA and payment tech company Square, which posited three intertwined causes for the relatively flat number of net business entries.

Firstly, labour shortages and supply chain disruptions continue to rattle existing enterprises and push them from profitability, leading to more exits.

Broader economic challenges relating to consumer spending and increased operating costs are also a factor, the report says.

Indeed, extra ABS data suggests small retailers are particularly susceptible, as shoppers make do with less discretionary income.

Businesses labeled as ‘Other Store-Based Retailing’ saw the greatest number of exits out of any category in March 2023, with 259 businesses closing their doors.

Thirdly, the COSBOA and Square report suggests red tape circling small businesses, a long-time sticking point for the organisation, could be responsible for some of the decline.

“Additional regulatory burdens, shifts in consumer spending, and broader structural changes in the economy could be impacting the business landscape,” the report said.

Resilience is key for small businesses to avoid their own exit

Commenting on the declining business entry rates, COSBOA CEO Luke Achterstraat said would-be entrepreneurs are holding off from establishing a new business until economic conditions are more hospitable.

“They might just be taking their time and just sort of putting a pin in things, and then waiting to see what happens in the economy over the next three to six months,” Achterstraat told SmartCompany.

“When you’ve got labour shortages, that are almost 200% higher than pre-pandemic levels, it would take a pretty gutsy person to enter into an industry knowing that there’s a real difficulty in finding workers.”

The organisation is hopeful of business entries increasing over the next three to six months.

The focus should also turn to the net number of business creations as a barometer of economic strength, Achterstraat said.

That requires thinking about how existing small businesses can remain resilient to the ongoing cost pressures, to ensure they too do not needlessly fall out of the economy.

Achterstraat said deep customer engagement is crucial at a time when many are spending less than usual.

“One of the key characteristics of a resilient small business is one that is anchored and tied quite closely to their consumer,” he said.

At the same time, stakeholder engagement, be it renegotiating contracts with suppliers or finding some leeway with the banks, can also help free up resources, he said.

“They’re the sorts of hallmarks of a business that’s resilient in the 21st century,” he said.

The full report is available here.