Australian small businesses post lowest growth rate

Australian small businesses achieved the lowest rate of growth in the Asia-Pacific in 2021, according to CPA Australia’s Asia-Pacific Small Business Survey. The organisation says the results point to the need for governments at all levels to do more to support Australia’s digital future.

CPA Australia is urging the major political parties to commit to more ambitious programs to hasten small business digital transformation as part of their federal election promises.

The survey shows that more Australian small businesses shrank in 2021 than grew. Only 32.2 per cent of Australian respondents responded that their business grew last year (survey average 47.3 per cent), while 35.5 per cent reported that they shrank. Not only did Australian small businesses record the lowest rate of revenue growth, at 33.7 per cent (survey average 50.2 per cent), only 7.1 per cent increased employee numbers (survey average 28.7 per cent).

Senior Manager Business Policy, Gavan Ord, says the below par results are a wake-up call. “Small businesses are incredibly important to Australia’s economy. They make up around 98 per cent of all Australian businesses, employ over 40 per cent of the domestic workforce and contribute the equivalent of one-third of our country’s GDP.

“I take my hat off to small businesses in Indonesia, the Philippines and India, which led the region by growth. Those markets have also had a tough ride from COVID-19 and yet their small business sectors have proven remarkably resilient. This begs the question, ‘Why are small businesses in Australia being out-performed by their regional peers?’

“Our survey shows that part of the answer lies in their inability to participate in the digital economy. There is positive correlation between digital adoption and business growth. But when it comes to Australian small businesses, technology is their weak link.”

Two years after the pandemic began, Australian small businesses are significantly less likely to conduct business online than their regional peers. 44.7 per cent of Australian small businesses did not earn any revenue from online sales in 2021 (survey average 19 per cent). They are also the most likely not to offer digital payment options (39.4 per cent; compared to only 0.1 per cent of Chinese small businesses) or use social media for business (36.7 per cent; survey average 17.2 per cent).

This situation appears unlikely to change any time soon. Australian small businesses were the least likely to make any investment in technology in 2021 (35.1 per cent did not make any investment in technology compared to only four per cent of small businesses from India). Only 5.9 per cent per cent of Australian small businesses expect to innovate in 2022 (survey average 27 per cent).

Ord says the results are evidence that Australia’s small business sector needs more help. “These are clear signs that current government digital support and incentive programs aren’t delivering for enough small businesses. The economic and social benefits of the shift to a digital economy will never be fully realised while significant numbers of small businesses are left on the sidelines. It’s in the national interest for governments to facilitate their inclusion and participation.”

CPA Australia is also concerned about the cyber security implications of the survey’s findings, given the current geo-political climate. Only 35.3 per cent of Australian small businesses have reviewed their cyber security in the past six months (survey average 46.7 per cent).

“Cyber security is a national security issue. According to the government’s Australian Cyber Security Centre, Russia’s invasion of the Ukraine has increased the likelihood of cyberattacks on Australian businesses. Our survey suggests that Australian small businesses under-estimate the prevalence of, and are under-prepared for, cyberattacks. This makes them one of the most vulnerable sectors of our economy, and hence most attractive targets, for cyberattacks.”

There are lots of ways to help small businesses improve their digital capability. However, they typically require a substantial investment, which overseas governments have so far proven more willing to make. For example, Singapore’s Productivity Solutions Grant (one of many in that country) includes S$600 million (A$605 million) to help small to medium-sized enterprises to digitalise and automate their processes.

With a federal election looming, CPA Australia is calling on the major political parties to make a meaningful commitment to small business digital transformation. We think this is a key to Australia becoming a leading digital economy and society by 2030, and to driving Australia’s future prosperity.

“Whichever party forms government, we want them to ensure Australia’s Digital Economy Strategy reflects the importance of small business and supports them to succeed in the digital economy.”

One of the predictors of small business success is access to professional advice. 96.1 per cent of the high growth businesses we surveyed sought professional advice in 2021. However, Australian small businesses were the least likely to seek professional advice. CPA Australia recommends giving small businesses financial incentives to seek professional advice, including about digital transformation.