For statistical purposes
The Australian Bureau of Statistics (ABS) defines Micro businesses as small businesses with 0–4 employees.
The ABS defines a Small business as an actively trading business with 0–19 employees
The ABS defines a medium-sized business as an actively trading business with
20–199 employees.
The ABS defines a large business as an actively trading business with 200 or more employees.
These simple statements have huge ramifications on the next 10 years in Australia.
Tourism, Construction, Farming, Manufacturing, Transport etc.
• Small to Medium Enterprises (SMEs) are the majority of GBA
• SMEs employ the majority of private industry and small business alone employs 85% of the private services sector.
• For the first time in history business failures now outnumber start-ups in the SME business sector.
• Australian small business people are some of the world’s best entrepreneurs.
• The only way to grow a business is from the profits and/or by borrowing.
The Small Business Association of Australia recently quoting from the latest statistics said there were 4.8 million people employed by 2 million + companies in Australia with 95.6% of them employed by small business. If just ¼ of these businesses were to reduce their staff by one person 500,000 people would be unemployed, around 10% 0f the private sector work force. That’s how important small business is to the economy.
The Risks for SMEs
Small to medium business is usually all about growth and struggle. These entrepreneurial leaders strive to take a business from a start up to a size that maintains a life style they envisage or to a point in the market where it can be sustained with a reasonable degree of ease.
To get there the owner/s mortgage their house to provide the funds to start and or to grow the business. They take as little salary as possible, they lease a business property, machinery, equipment and a car. They establish supply lines on credit to support the business. They offer credit to their clients, they collect taxes on behalf of the Government and they employ the majority of the private sector work force.
In good times the business stays healthy and the business owner/s generally cover their costs and plow the profits back into the business.
At no time have they any opportunity of providing a financial reserve when the market downturns, as it has. When the business collapses the business owner/s are fully exposed. Different to an employee who may sadly lose their job, the business owner/s not only lose their job but are fully exposed to the borrowings against their home, the leases and the creditors debt as well as possible client bad debts. This can be an overall debt too high to repay. (Disturbing statistics of this are emerging now.)
GovA does not understand SMEs as most government employees who set the rules or impose the taxes have never worked in the private sector nor had to worry about where their next pay packet was coming from. They have never taken into consideration the impact of regulation, rules, taxes and costs on the SME sector and of course do not understand price point. They don’t have any idea of controlling the monopolies that control our retail dollar especially the two major needs of food and petrol. It is against the law in USA to have such monopolies but not here and the impact is massive.
Do not believe GovA and the media who say Australia is doing well. SMEs are probably as badly off as those in the USA or parts of Europe. Small business in Australia is seriously in trouble in all areas not involved in mining.
Key findings of the Credit agency Dun & Bradstreet Business Failures and Start-ups Analysis for the December quarter 2011:
• Nationwide, insolvencies rose 42 per cent year-on-year while the number of new businesses fell 11 per cent over the same period;
• Small business failures grew 57 per cent over the year among firms with less than five employees and 40 per cent over the year among firms with six to 19 employees;
• Small business start-ups among firms with less than five employees fell 95 per cent in the year;
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• Failures were most pronounced within the service (up 58%), finance (up 58%) and construction (up 66%) sectors; and
• Start-ups during the December quarter in the manufacturing, service and finance sectors fell by nearly 100 per cent.
And it is still going…… On September the 15th of 2013 the Financial Review reported:
“The number of business failures in Australia has risen sharply despite global insolvencies falling to their lowest level in nearly four years.
Credit agency Dun & Bradstreet says business failures in Australia rose 12.1 per cent in the June quarter, compared to a 4.1 per cent rise in the prior quarter.”
Dun & Bradstreet chief executive Christine Christian said “Outside the mining sector, sentiment is generally still poor, and the strong Australian dollar is straining profits,” she said. “Insolvency activity in Australia is up across almost all sectors, with a significant deterioration in retail and service sector failures, reflecting subdued confidence.”
“Dun & Bradstreet said in its Global Business Failures report that Australia and the euro zone in Europe were the only regions to record a rise in business failures in the June quarter. Business failures across advanced economies fell 5.7 per cent and also fell in emerging economies such as China and South Africa.”
With, the current world financial crisis (and it is still on) further government taxes, strangling regulation and costs, SMEs are failing and will continue to be in serious danger of collapse unless there is, first some understanding and second some focus on change by GovA to implement plans to urgently address the problem.
If nothing is done, more small business owners will not only lose their income but they will be burdened with an enormous debt from which they may not recover. Not only will this failure dramatically drive unemployment but we will create a generation of new poor. More importantly we will destroy the entrepreneurial spirit which is Australia’s strategic advantage.
Mining Sector
Because of a few great entrepreneurs who dramatically took on governments through the years MA is now roaring ahead with the demand for our iron ore, coal and minerals continuing to grow and provide great riches from this huge success.
MA is so big and powerful they drive their own agenda of employment, contractors, supplies and the distribution of profits and so they should, after all they took the huge risks to get there. Interestingly, many of these entrepreneurial companies are small businesses in operation or started out as such.
Thank goodness for MA, because of these few stand-out Australians the dominant performance of MA is propping up Australia, because when combined with GBA, Australia appears to be balancing its books.
But GovA does not understand the situation and does not look at the various sectors of the economy in isolation. The problem is GovA has become singularly focused on MA to drag taxes and royalties from them to prop up a massively bloated GovA.
SME Stimulus
Australia would see definite positive short and medium term results by providing stimulus through SMEs. In addition to infrastructure expenditure, we believe the stimulus will be more effective in the form of relaxation of laws, rules and regulation that are strangling SMEs. No one is looking for handouts just understanding. Why SMEs?
SMEs can react quickly.
SMEs can adjust and change quickly to product and market changes.
SMEs powered by growth incentives are quick in providing jobs.
SMEs are always hungry for and take advantage of opportunity.
SMEs are the largest employer outside of Government.
The Federal Government needs to address the following points to establish a solid basis on which SMEs can prosper.
1.Think Tank – An independent “Think Tank” to implement a plan for Australia’s future focus.
2.Business model restructure – for less regulation, greater flexibility and support.
3.Price Point – Research the impact new costs, taxes and regulation have on SME’s
4.Banking – Establish letter of credit as security for export incentives and expansion opportunities.
5.Tax – Stabilise and simplify taxes for small business especially FBT and Payroll Tax and reduce the Director penalty notices with the ATO as a preferred creditor.
6.Charter for Monopolies – Establish a Charter to reduce the impact of monopolies on SMEs.
7.SME Policy – A training course and viability test prior to registering a new business
8.State Borders Offset the impact of State Borders.
Think Tank
If Australia is to prosper in a world of continuous competition there is a great need for the development of innovation in all circles of business. This knowledge growth can only be harnessed and exploited by the interaction between universities, business and government and the development of policies to promote this growth of knowledge and innovation.
Some say Australia is a “Socialist Quarry” highly over-governed and funded by the mining sector.
There is no 20 year plan, no 10 year not even a 5 year plan for the future of Australia. In fact there is no plan. Political parties with their 3 year election cycle do not set plans for our future.
As every good company manager knows it is critical to set a plan and we need a plan and a direction for Australia’s future.
An established Think Tank made up of Government, Education, Community and Business representation would provide for the Australian people to have input by representation in this decision making process.
Each of the organizations “at the table” could go back to their members to evaluate the decisions and ideas. This entity could meet bi-annually and have an executive that meets quarterly.
This Think Tank should be established, independent of the Government of the day with a role to determine Australia’s future. It should author the plan and monitor progress, making changes and adjustments as required for the success of the Country. Major projects and decisions of Federal or State Government developed during each term would require a sign off from the Think Tank before proceeding. (The decisions for the S.E.Queensland water grid and carbon tax come to mind).
The planning for this Think Tank has already commenced today, here now, with leadership from the Small Business Association of Australia.
Benefits
• All Government could be slimmed down to a focused administration creating huge cost savings.
• Education Centre’s can provide the selected training and produce the skilled professionals required for the work force for the future.
• Business can plan their future activities for long term success and profitability.
• The Australian people by representation in the Think Tank would have continuous involvement in the decision making process and the long term plan for Australia.
• This is a cost neutral policy change.
Business Model Restructure
There needs to be more flexibility in company structures. The Propriety Limited Company (P/L) is the common SME vehicle and in today’s world has far too many rules and regulations to follow and report. Unlike big business who can afford a team of specialist accountants SMEs have no such available and affordable intelligence yet are expected to provide the same amount of diligence.
A P/L was originally established to protect the business creator, the entrepreneur, the limit of the paid up capital being the total exposure of the business. This does not happen anymore. If the company fails to adapt or survive in an ever changing critical, financial environment, sometimes with that financial damage created by Government, then the business owner is not supported nor protected but destroyed, sometimes, never to return to a personal, positive, financial position, and never provided the opportunity to restructure and survive.
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 rules around Directors (the same as those of a Listed Public Company) are so draconian that few experienced, management, legal or financial professionals will take a position on a small business Board of Directors leaving the business exposed to the skill set of the owner/s which is usually in the skill of the business activity.
The exposure is so open, now, that it is difficult to attract investment from professional investors without their need to control the company. P/L s are also too restrictive for private investment. The restriction to attract broader investment and the inability to remove or for shareholders to exit, are two of the biggest constraints.
SMEs are employing around four and a half million Australians. GovA has created such difficult employment laws to “protect the worker” that SMEs are becoming scared to employ full time staff. Where possible they employ contractors or casual labor. This does not benefit the SMEs long term but is safer under current employment legislation. Many employers and workers are operating around the current legislation for the former just to do business and the latter to keep their jobs.
Because of these difficult laws the big shift is to go off shore. More and more companies are going off shore for accounting, administrative, IT and marketing services reducing employment even further. Remember that small business currently employs 85% of the private services sector. For how long?
If the business hits difficulties there is no mechanism to save or restore it. If a lender (bank) decides to re-evaluate the business or the security and appoint managers or receivers, they (the receivers) are under instructions by law to sell off everything they can as quickly as they can to retrieve as much as they can for the lender and this is at the same charge out rate whether the company be large or small. There is no consideration for the owner even though the decision was out of their control.
We need to protect entrepreneurial spirit and change the rules of the private company back to the original intention. Focus should be on support for the small business person, to assist them and give them time to restructure if it is possible. Legitimate Industry Associations (IAs) and Business Representative Bodies (BRBs) should play a role hand in hand with GovA for establishing new rules of salvation by establishing safety nets for struggling businesses and implementing business generated recovery programs. These IAs or BRBs should be given the role of administrating the rules as independent arbiters and be given the power to assist in saving the business.
Benefits
• There would be greater confidence by small business with far less failures.
• Increase in employment.
• Industry Associations would become stronger providing empathy for the small business and a single voice to Government.
• Government would gain a depth of understanding of small business.
• Small business, Government and Australia would prosper.
• This is a cost neutral policy change.
Price Point
Price point is what the majority is prepared to pay for a product or service.
Price point is what the majority is prepared to pay for a product or service.
`GovA imposes (without understanding the ramifications) costs, taxes and regulation that imposes further costs. The problem we have today is there is no training for our government employees in price point. They do not understand that you cannot just raise the price of commodities, services, products and expect people to be able to pay for it.
They have no experience in commerce and worse they don’t understand that there is reason for them to understand.
Some of these costs can be passed on to the consumer making sales more difficult, but all products and services have a “price point” which means if the costs cannot be passed on they have to be absorbed. This puts huge financial pressure on the business. GovA needs to research the impact new costs, taxes and regulation have on SME’s and the direct or indirect financial burdens prior to implementation.
We believe that all government employees should have 5 years of experience in private industry in companies with under 50 employees.
This happens in almost every other trade and professional field e.g. bricklayers, lawyers, electricians and doctors etc.
This should be their apprenticeship before they are able to join the government. They would have a far greater understanding of the impact their costs, laws and rules have on the private sector.
Benefits
• There would be greater confidence by small business with far less failures.
• Industry representative bodies would become stronger providing empathy for the small business and a single voice to Government.
• Government would GBAin a depth of understanding of small business.
• Small business, Government and Australia would prosper.
• This is a cost neutral policy change.
Banks
Banks have trouble lending to small business due to the excessive reserve required as placed on small business.
Why not consider Irrevocable Letters of Credit (LCs)
LCs should be acceptable as collateral or security. A letter of credit has greater substance than property and is a short term arrangement on an order by order basis. The amount loaned against an LC is the cost of production or milestone of an order.
The profit is received upon completion when the product is delivered and the money transferred bank to bank.
In Australia SMEs tend to be localised and therefore are usually highly competitive. To be successful and maintain their competitive edge these businesses have developed strong strategic advantages. Provided with the opportunity, these advantages could be exploited in broader markets. So as local markets shrink these businesses can expand their market reach.
An important market that only requires a shift of focus is the area of export. Following the example of the Singapore government, money would be more accessible with a reduction in the reserve on legitimate and irrevocable letters of credit on export orders.
An irrevocable letter of credit is common in export trade and provides the “irrevocable” security against the financing. All it takes is a shift in mindset. Companies will follow the easier money and Australia’s focus would soon become export oriented, led by SMEs who will react quickest. This would cost GovA nothing.
Benefits
• With the correct due diligence small business could access funding on a rolling line of credit.
• Banks would be less exposed than on property.
• There would be greater confidence by small business with growth in profits.
• Increase in employment.
• A direct focus on export supporting the balance of trade.
• Small business, Government and Australia would prosper.
• This is a cost neutral policy change.
Taxes
A Business Council of Australia report found “Governments imposed 56 different taxes on business”. Small business has to provide the same taxation activities as Telstra or BHP. A one person or even a 5 person company has difficulty in building and operating a successful business without the imposition of non-profitable, complex and difficult, multiple, government tax collection activities.
If they make mistakes they are not only fined heavily but hounded by the tax department as if they were major criminals. They have no money to fight, so of course they capitulate. They are easy prey. The more GovA punish them the more GovA loses. (SMEs are the majority employers). GovA should stop punishing all for the sake of a few.
The cost of employing bookkeepers and tax accountants (to make sure the book keepers are correct) because of the complexity, has become too expensive for most, especially the 1 to 5 person company.
Small businesses should have a simple one tax treatment in a package which removes the daily, weekly and monthly load and allows for a professional accountant to bill an acceptable fee annually. This single tax system would be calculated and established as a capped sum across the size and performance of the business, measured by employment numbers, turnover and profit.
Benefits
• Small business tax would be easier, fairer and easily collectable.
• There would be greater confidence by small business with far less administrative work to do.
• Less control work by the Tax department and a reduction in staff.
• Small business, Government and Australia would prosper.
• This is a cost neutral policy change.
Charter for Monopolies
A number of large Australian Companies continue to move into territories of SMEs. E.g. Coles are now trialing lotto outlets in Victoria. This was once the product for news agencies who have already been hit by the reduction in newspaper sales.
SMEs cannot hope to compete because of the buying power, advertising budgets and retail exposure of these giants. These monopolies control the major commodities of food, petrol, hardware, alcohol etc.
One simple method of equaling the playing field is to set a charter where large monopolies have to shop at home first. If they cannot purchase equally in Australia (quality, price etc.) then they can purchase off shore.
There should be an umpire by way of an industry association in joint venture with Government whom small business can go to if not satisfied with the large monopolies decision. Whilst this will not affect the monopolising of the various industries it will give SMEs the opportunity to achieve sales if their products are competitive.
By having the opportunity of associating with the large companies SMEs would establish regular dialogue, understand the purchasing processes and develop management skills to interact in big business to “open doorsâ€. Big business would be exposed to the entrepreneurial ideas and new developments of SMEs. All would prosper from the relationship by working in team to strengthen particular industries.
Benefits
• There would be a fairer free economy.
• There would be greater opportunity for small business.
• Industry representative bodies would provide a single voice to Government.
• Small business, big business, Government and Australia would prosper.
• This is a cost neutral policy change.
U.S. law generally views monopolies as harmful because they obstruct the channels of free competition that determine the price and quality of products and services that are offered to the public. The owners of a monopoly have the power, as a group, to set prices, to exclude competitors, and to control the market in the relevant geographic area.
U.S. ANTITRUST LAWS prohibit monopolies and any other practices that unduly restrain competitive trade. These laws are based on the belief that equality of opportunity in the marketplace and the free interactions of competitive forces result in the best allocation of the economic resources of the nation.
