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The Money.com.au study on the fragility of Australian small businesses

June 2020

About the study

Money.com.au conducted an independent survey of 261 Australian businesses – 88 per cent of which are SMEs. It asked business owners if they had thought about closing due to challenges within, and external pressures on, the business to ascertain the fragility of Australian small businesses amid the devastating consequences of the pandemic.

Money.com.au surveyed businesses across a range of sizes: small (1-50 employees), medium (51-200 employees) and large (more than 200 employees).

Will businesses be making capital purchases in FY21?

The survey revealed that two in three businesses (66 per cent) were planning to invest in equipment, vehicles or other capital in FY21. A greater proportion of small businesses were likely to invest in capital: 88 per cent of large businesses, 91 per cent of medium businesses and 92 per cent of small businesses. However, only 41 per cent of micro businesses planned to make capital purchases in FY21.

Across the States, more WA businesses (78 per cent) are likely to be purchasing capital in the upcoming financial year. This compared with 43 per cent of ACT businesses and 61 per cent of businesses in Victoria.

The reality is that running a business is hard – and most have considered closing more than once

When asked to think about their business journey, just 38 per cent of business owners said they have never considered closing due to challenges within the business or external pressures. A concerning 32 per cent said they have occasionally been at this point, 8 per cent answered often, and 23 per cent answered rarely.

When comparing organisation size, large businesses seemed to struggle the most, with 55 per cent of large business owners saying they often thought about closing their doors. This is compared with 44 per cent of medium-sized businesses, and 25 per cent of small businesses.

Western Australia could be the most difficult market for small businesses. Half of business owners in WA admitted they had thought of closing on a handful of occasions, compared with 35 per cent of those in Victoria, and 27 per cent in NSW.

What are the major challenges causing business owners to consider giving up?

Respondents were asked to nominate the major challenge that motivated them to consider giving up the business. One in three (35 per cent) nominated financial issues as the number one challenge. This includes cash flow problems, the most common of all the challenges (chosen by 16 per cent of respondents), inadequate revenue or profit (11 per cent of respondents), and poor customer acquisition and retention (8 per cent of respondents).

The results revealed that smaller businesses seemed more likely to experience internal issues, with 13 per cent of small business owners citing employee issues as a challenge that motivated them to consider giving up the business, compared with 11 per cent of medium-sized businesses and 7 per cent of large businesses.

Across the country, a quarter of business owners in ACT said inadequate profit caused them to consider giving up their business. Businesses in Western Australia seemed to have similar issues, with 28 per cent indicating cash flow issues caused them to consider the same fate.

Knowing what they know now, would business owners go through the journey again?

When asked if they would go through the business journey again knowing the challenges involved, one-fifth (19 per cent) of all business owners said they would not, with a quarter (25 per cent) still undecided.

Small businesses seemed to be less inclined to want to go through the journey again, with 23 per cent of small businesses saying they wouldn’t, compared to only 10 per cent of those from large businesses.

Businesses in NSW seem to have gone through bigger challenges than those in other states. Twenty-eight (28) per cent said they wouldn’t go through the journey again knowing the challenges they would face, compared with 18 per cent in Victoria and 16 per cent in Queensland.

What sacrifices did business owners make to start, operate and grow their businesses?

Seeking to understand the impact of these challenges on the business owners themselves, Money.com.au asked respondents if they made significant sacrifices to start, operate and grow their businesses. Just 22 per cent of respondents said they did not make major sacrifices.

Some of the sacrifices that 78 per cent of business owners did make have altered their lives. A significant 40 per cent admitted they spent less time with their family than they normally would, and 30 per cent said that, for years, they paid themselves less than market rates.

Concerningly, those with smaller businesses seemed more likely to feel the impact on their social life, with almost half (47 per cent) of small business owners saying they spent less time with family, compared with 39 per cent of medium-sized business owners and 36 per cent of large business owners. Twenty-eight per cent of small-business owners also admitted to paying themselves less than market value for years, compared with 36 per cent of medium-sized business owners and 19 per cent of large business owners.

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