Small business booms

Me Inc is booming. There are now just over two million actively trading businesses in Australia, as at June 2007. Growth jumped 2.4% in 2006-07 after slowing in the previous three years.

The growth was due to more people starting their own businesses in 2006-07 and less people exiting. Forecaster Phil Ruthven from IBISWorld puts the surge down to 16 years of uninterrupted boom, giving people the confidence to give it a go. “They now have the reserves to do it,” he says.

The entry rate for people starting their own businesses was 17%, up from 16.2% in 2005-06. The exit rate fell to 14.6%, down from 14.9% – the lowest rate recorded in the last four years.

The growth industries where many of the new businesses were created were education (24%) and communication services (23%) followed by finance and insurance (21%) and construction (20%).

Over the same period, exit rates were highest for communications services (20%) followed by education, electricity, gas and water supply. “The high entry and exit rates associated with education and communication services industries suggests these industries have experienced a significant amount of churn in 2006-07,” says the Australian Bureau of Statistics. They also experienced low survival rates from 2006-07.

The number of manufacturing businesses continued to fall – they have decreased every year since the data series started in 2003. In 2006-07 manufacturing fell 0.2%. The only other industry to suffer a decline is electricity, gas and water supplies (-4.3%).

Of the 1,868,969 businesses operating in June 2003, 58% are still operating in June 2007. Of the 777,106 businesses which exited, only 16% exited during 2006-07 with 37% exiting during 2003-04, 28% during 2004-05 and 20% during 2005-06.

In the short to medium term, business survival is related to age. “The longer a business survives, the greater its chances of continuing survival, the ABS says.

Survival also relies on employment. Businesses that don’t employ have a significantly lower survival rate than employing businesses. For example of almost half of all entries in 2003-04 were still operating in June 2007, 71% of new employing businesses were still operating compared to 40% of new non-employing businesses.

Entry rates were higher for non-employing businesses (20%) compared to the previous year (18%).

Most business entries (93%) occur by non-employing businesses and businesses employing between one and four people.

No surprise that most employing businesses (90%) employ less than 20 employees.

About 70% of those businesses have between one and four employees and 30% have five to 19 employees.

There are only 9% of businesses (78,304) with 20 to 199 employees and less than 1% of businesses (5876) with 200 employees or more.