Aussie small business performance in decline

MYOB has unveiled its new SME Performance Indicator, offering an in-depth look at the economic health of Australia’s small business sector. Launched today at the Australian Conference of Economists, the indicator reveals that small businesses are struggling, with a performance score of -2.0 for May 2024.

Understanding the SME Performance Indicator

The SME Performance Indicator measures the economic output of businesses with 1-19 employees. It compares their Gross Value Added (GVA) to the overall GDP, providing a clear picture of how small businesses are faring compared to the broader economy.

According to Paul Robson, CEO of MYOB, the results underscore the ongoing challenges faced by small businesses. “The SME Performance Indicator tells us how the small business sector is performing compared to the Australian economy,” Robson said.

“The SME Performance Score, tracking the deviation of SME performance to GDP, is at -2.0 for May. This has been in negative since the end of last year, reflecting the economic environment SMEs are operating in. Small businesses have less of a cashflow buffer than larger enterprises, and the cost of borrowing has had a significant impact on them, as has interest rates and cost of living pressures causing households to reduce their non-essential spending. Our findings suggest this has particularly affected the retail industry.”

Industry-Specific Insights

The indicator draws from over 17 million observations of 200,000 businesses, offering the most comprehensive data on small business performance in Australia. It highlights significant trends across various industries. For example, agriculture saw a 14 per cent rise in GVA over the 12 months to June 2023, thanks to record-high production levels. Conversely, the retail sector has seen minimal growth since late 2021, with a 7 per cent decline in GVA over the past two years due to cost-of-living pressures and reduced household spending.

“Small businesses are more sensitive to the business cycle and quicker to respond to changing economic circumstances than other business types,” Robson said. “Businesses like MYOB can also keep track of what hurdles these businesses are facing and ensure we’re providing support for this crucial sector.

“As a champion of small business for more than 30 years, MYOB is in a unique position to provide Australia’s economists with this new, powerful level of insight. Ninety-seven per cent of Australia’s businesses are small businesses. These 2.5 million firms employ 42% of workers – the largest share of any business type – and represent nearly a third of total economic activity in Australia every year.”

Broader economic implications

Dr. Angela Jackson, Lead Economist at Impact Economics and Policy, noted the broader implications of the SME Performance Indicator.

“The indicator provides an authoritative new resource for decision makers in the private sector and government, leveraging data to provide valuable insights on the performance of the small business sector and its role in the economy,” she said.

“The recent downturn in economic activity, and the flattening in April and May, suggest the small business sector may not make a positive contribution to Australian GDP growth in the June quarter. This is due to pressures on small business across key sectors.”

Regional performance insights

Regional insights from the indicator also show varying performance across states. Western Australia, for instance, has seen a 17% increase in GVA since early 2020, buoyed by high commodity prices and strong household consumption. In contrast, New South Wales and Victoria have experienced more modest growth.

Dr. Jackson highlighted the value of this data for policymakers and economists. “It’s clear from the depth of this data that MYOB’s SME Performance Indicator can help economists predict measures such as GDP, wages growth, jobs growth, and consumer spending.

“Small business provides about a third of the economy’s value. In 2021 it added over $500 billion in value, compared with $344 million for medium-sized businesses and $711 million for large businesses.”

Want more? Get our newsletter delivered straight to your inbox! Follow Kochie’s Business Builders on Facebook, Twitter, Instagram, and LinkedIn.