Start Your Business Engines

A recent report from the ABS titled, ‘Australian Business Entries and Exits' has just buried the myth that four out of five businesses fail in the first year of operation.

The report suggests that of the 2.07 million businesses operating in June 2007, 85% were still there a year later and 74% two years on. Of the 316,867 new business entries in 2007-08, 71% were still there a year later and there is no explanation as to why 29% ceased. No doubt some were sold and others may have merged.

Of course, some businesses fail but what does failure really mean? If you start a business and realise six months later that you need to change direction and close that business down to start another venture, is that failure? The important point is, most people in business succeed. Surprisingly, the GFC didn't have a big impact on business failures in Australia. The entry rate for new businesses during '2008-'09 was down slightly, from 15.3% to 14.4%, presumably because the GFC deterred people from starting their own business. However, exit rates remained steady at 15.4% for 2007-08 and 2008-09.

As you would expect, the survival rate for start-ups was highest for those businesses with annual turnover of $2 million or more (85.6%) and lowest for those businesses with less than $50,000 (65.6%). The survival rate for start-up businesses that employ staff (82%) is much higher than those that don't employ staff (67%) which may seem odd given many start-up business owners are advised to start small, keep costs down and defer the decision to employ staff. The moral of the story is if you have the knowledge and experience in your industry, networks, contacts, financial backing and quality staff in the sales and operations area you have a very good chance of success. In fact, in some cases it will fast track your business success.

The study also profiled businesses in Australia. In June 2009, Australia had more than 2 million businesses. A large percentage of Australian businesses were in the construction industry (17%), followed by professional, scientific and technical services (11%). Rental, hiring and real estate services accounted for 10% of all Australian businesses. There are 1.2 million businesses who are literally sole traders with no staff and there are only 6,349 businesses in Australia with more than 200 employees. This is less than 1% of all Australian businesses that employ staff and the micro sector (with 1-4 employees) makes up 68% (497,098) of businesses who employ staff in Australia. The next rung up is businesses that have 5-19 employees 233,957 (32%).

Despite all the negative press and lack of finance available, the GFC hasn't destroyed the start-up sector in Australia. Indeed, there are plenty of opportunities for smart start-ups to grow and prosper. Starting a business is a bit like a game of chess that requires the right opening moves. If you're thinking about starting a business come and talk to us today because we are passionate about small business and the success of our clients.

IMPORTANT DISCLAIMER: This article is published as a guide to clients and for their private information. This article does not constitute advice. Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of these areas.