Contribution
From “The Conversation” an international academic forum
• Unlike many of our larger firms, 97% of our SMEs are wholly Australian owned.
• 35% have reported a decrease in their profitability in recent years.
• Only 15% have sought assistance from the Government
Contribution to Domestic Production
In February 2007 Telstra Business commissioned a series of research reports which showed SMEs substantial contribution to domestic production in a wide range of industries.
• SMEs contribute 95% of the value of Australia’s agriculture, forestry and fishing production.
• 80% of the value of Australia’s Construction industry output
• 67% of Property and Business Services production
• 42% of the value of national manufacturing industry output.
Innovation
From Mike Templeman at “entrepreneur .com”
• Innovation is necessary for survival for small businesses and startups.
• Small businesses and startups are the breeding grounds for innovation.
• Unhindered by the same tethers that hold down big businesses, these companies are able to innovate in ways that their larger counterparts cannot.
From the “Washington Post”
“With knowledge now widely distributed, companies cannot rely entirely on their own research, but should acquire inventions or intellectual property from other companies when it advances [their] business model.”
Intellectual Property
From the Magazine “I.P. Watchdog”
• Small business creates about 5 times more patents per employee than large firms and 20 times more than universities.
• Small firms patents are more important (more often cited) than large firm patents.
• Small technology firms employ 38% of all scientists and engineers in America (54.8 percent of all industrial scientists and engineers) with only 4.3 percent of the government R&D dollars.
• In contrast, firms with more than 500 employees account for only 27% of all scientists and engineers, but receive 50.3 percent of government R&D funds.
Employment
From the “Houston Chronical”
“Small businesses drive economic growth in the United States.
According to a May 2011 report from the Council of Economic Advisors, small businesses were responsible for creating more than 60 percent of new jobs in the United States during the previous 15 years.”
And it is more so here in Australia.
Dramatic Continuous Change in Commerce and Industry
Leo D’Angelo Fisher in the magazine “Acuity” wrote:
Rapidly changing technology, changing consumer behaviours, whole industries in a state of flux and a global economy still adjusting to the huge shifts of the global financial crisis has had dramatic impact on business models, strategic frameworks and management styles. Large Companies are always slow to react and will more and more find themselves chasing the small entrepreneurial SMEs.
Why SMEs?
• SMEs can react quickly.
• SMEs can make quick decisions.
• SMEs are quick to uptake and adapt to new technology.
• SMEs adjust and change quickly to market changes.
• SMEs are always hungry for and take advantage of opportunity.
• SMEs powered by growth incentives are quick in providing jobs.
• SMEs are the largest employer group outside of Government.
We were asked recently to provide a submission for the Federal Government on business investment for SMEs. The following outlines the difficulties and solutions.
SMEs have difficulty raising funding. Why?
Because of the amount of reserve required against SMEs, banks only lend against hard assets, mainly the business owner’s property, not the business.
Government grants on offer, are often, too restrictive, too complicated and too late for SMEs. Most grants are too difficult to access due to the $ for $ funding requirement. SMEs most times cannot apply as there is little or no spare money to commit to this $ for $ funding. SMEs are competing against large companies with professional resources for limited funds.
The new Government incentives whilst excellent in their concept do not, on their own, invite investment because the SME vehicle is still restricted by regulation. Small Business in Australia is over governed. The Proprietary Limited Company (P/L) has far too many regulations.
A P/L was originally established to protect the business creator, the limit of the paid up capital being the total exposure of the business. This does not happen anymore.
All credit is joint and severally guaranteed by the Directors. The banks secure the business with the personal property of the Directors and the Taxation Department holds the Directors responsible for the company debt.
The exposure is so open, now, that it is difficult to attract investment from professional investors who do not want Board exposure. P/L s are also too restrictive for private investment. The restriction to attract broader investment and the inability for shareholders to exit, are two of the biggest constraints.
Stock Brokers, Investment funds, Banks, Insurance Companies, Financial Planners, Accountants, Financial Advisors and Lawyers are all risk averse. They no longer introduce their investing clients to business opportunities with SMEs due to the perceived legal liability of making such a referral, the risk exposure to the client and the difficulty to invest in SMEs.
We need to change the rules of the private company back to the original intention of limited liability. We need to protect entrepreneurial spirit and focus should be on support for the small business person, to assist them. The company model should be easily structured so as to invite investment.
In identifying this need we have identified a solution that does not impose any cost on Government but will open up a huge opportunity for investment in SMEs.
Government open up the 708 rule of the Corporation’s Act. Instead of 20 unsophisticated investors in 12 months the number of investors is unlimited with the following rules.
1. SMEs establish an unlisted public company with low cost aimed regulation.
2. Using an on line Executive Summary template (by SBAA and others) approved by ASIC
3. Company is audited against the document. Model allows for low cost
4. Register audited document with ASIC
5. Limit the funding to $5 million ??
6. Limit each investment to $100K ?? for unsophisticated investors
7. Align the model to include or match Crowd Funding
8. Legislate to allow easy referral by Stock Brokers, Investment funds, Banks, Insurance Companies, Financial Planners, Accountants, Financial Advisors and Lawyers.
9. Provide incentives to stimulate investment.
There is an urgent need for major policy changes to support SMEs. These changes should include reducing regulation and simplifying mechanisms for easy investment in SMEs. This initiative will allow every entrepreneur the opportunity to start and grow a business in Australia without cost to Government.
It will create opportunities for individuals to build financial security for themselves, their employees and the next generation of their families as well as finance Australia. It will put us up there with Singapore and NZ as the place in the world to do business.
Lionel Barden
Small Business Policy Chair
Small Business Association of Australia
Reference: AIM London Stock Exchange for Small Business
http://www.londonstockexchange.com/companies-and-advisors/aim/for-companies/companies.htm
