Definitions and data sources for small business in Australia: a quick guide

1 December 2015

PDF version [302KB]

Geoff Gilfillan
Statistics and Mapping Section

 

How do we define small business?

The Australian Bureau of Statistics (ABS) defines a small business as a business employing fewer than 20 people. Categories of small businesses include:

  • Non-employing businesses (sole proprietorships and partnerships without employees)
  • Micro-businesses (businesses employing between 1 and 4 people including non‑employing businesses)
  • Other small businesses (businesses that employ between 5 and 19 employees)

Small businesses are more likely to have independent ownership and be operated independently. Owners or managers of small businesses tend to have close control of operations, undertake principal decision making and contribute most of the operating capital.

The Australian Taxation Office (ATO) uses a different definition of small business. According to the ATO a small business entity is an individual, partnership, company or trust that is carrying on a business and has less than $2 million in aggregated turnover. Aggregated turnover is the annual turnover from a current business and any annual turnover from other businesses that an individual is connected or affiliated with. Note that a business that has less than $2 million in turnover may have 20 employees or more while a business with fewer than 20 employees may have turnover that exceeds $2 million per annum. The ATO also define a micro business as having total business income of less than $2 million while a small business has business income of between $2 and $10 million per annum.

As the statistics used in the quick guide are drawn from ABS publications we will be using the ABS definition of small business.

What statistical information is available on small business?

There are a number of publications released by the Australian Bureau of Statistics (ABS) which shed light on the contribution of small businesses to the Australian economy and how they operate.

Small business employment and contribution to industry value added

The Australian Industry publication (ABS Cat. no. 8155.0) is produced annually and provides estimates that draw on data collected directly from the Economic Activity Survey (EAS)[1] conducted by the ABS and the Business Activity Statement (BAS) provided by businesses to the ATO.

Australian Industry provides information by business size (number of employees) and by industry on a number of key economic indicators including: employment, wages and salaries, sales and service income, total income, total expenses, operating profit before tax and industry value added (IVA) for industries that are within scope of the survey collection.[2]

This enables comparisons of contributions of small, medium and large businesses to total employment and total IVA in the economy over the short and longer term. IVA is the measure of the contribution by private sector businesses in each industry to Gross Domestic Product (GDP). The ABS defines GDP as the total market value of goods and services produced in Australia within a given period after deducting the cost of goods and services used up in the process of production but before deducting allowances for the consumption of fixed capital.

Small business count

The ABS also provides annual estimates of the number of operating small businesses in Counts of Australian Businesses, including Entries and Exits (Cat. no. 8165.0). The data provided is a snapshot of actively trading businesses at 30 June each year. Information is drawn from financial records held by the ATO of Australian businesses that have been issued an Australian Business Number (ABN). The data is then cleaned and stored in the ABS Australian Business Register (ABR).

Information is available on the current number of actively trading businesses by employee size and industry, the number of entries and exits of businesses that occur each year and survival rates of businesses over one, two, three and four years. Data is also provided on transitions between business size categories (for example, from businesses employing 1 to 4 employees to businesses employing between 5 and 19 employees). Information is also available on businesses by annual turnover size.

Small business exporters

Characteristics of Australian Exporters (ABS Cat. No. 5368.0.55.006) provides financial year information on the characteristics and value of international trading activities of Australian firms by business size and industry. Data is drawn from the ABS Survey of International Trade and Services, as well as data provided by the former Australian Customs and Border Protection Service (Customs) (now superseded by Australian Border Force) and records stored on the ABR.

Small business use of information technology

Selected Characteristics of Australian Business (ABS Cat. No. 8167.0) draws information on an annual basis from survey responses of 6,500 businesses. The publication provides information on the rate of connection of businesses (by firm size) to the internet and other forms of social media, and use of the internet by businesses to place and receive orders as well as advertise their products and services. The publication also provides information on the type of internet connections used by businesses (such as Digital Subscriber Line (DSL), Fibre to the premises (FTTP), cables, fixed wireless, mobile wireless or satellite).

Small business use of flexible working arrangements

Selected Characteristics of Australian Business also provides information on the rate of adoption by small businesses of flexible working arrangements that allow employees to better balance work and caring commitments. These arrangements include paid parental leave, flexible working hours and carer’s leave.

Barriers to innovation for small businesses

Selected Characteristics of Australian Business provides information on barriers to innovation for small, medium and large businesses. Barriers can include lack of access to additional funds, skill shortages, lack of access to knowledge and technology, the impact of government regulations and compliance, the need to adhere to standards, and uncertain demand for new goods and services.

Other statistics available

Selected Characteristics of Australian Business publishes information on the rate of foreign ownership by business size, the presence of franchise arrangements, and method used to protect intellectual property. The publication also provides information on the rate of firms seeking debt or equity finance and their rate of success in securing finance.

Why do employment estimates provided in the Australian Industry publication differ from ABS Labour Force survey estimates?

The employment estimates from the Australian Industry publication are different to those provided by the ABS Labour Force Survey due to the different data sources and methodologies used. The Labour Force Survey is based on the responses of a sample of residents of 26,000 private dwellings who are interviewed every month for eight months. Employment by firm size from the Australian Industry publication are based on responses to the ABS Economic Activity Survey (EAS) and financial records included in Business Activity Statements provided by businesses to the ATO.

In June 2014, the Australian Industry data series shows 10.7 million people were employed in Australia whereas the Labour Force survey showed 11.8 million people employed.

Why are estimates for the number of small business employees in Australia lower than estimates for small business employment?

A simple explanation for the difference between employment and employee estimates is employment estimates include other categories of workers as well as employees. These categories include employers and account workers (or owner managers of unincorporated enterprises) and contributing family workers. It has been estimated by the ABS that other categories of employment account for 12 per cent of total employment.

Figure 1 — Composition of employment by employment type

Figure 1 — Composition of employment by employment type

Source: ABS, Labour Force, Australia, Detailed - Electronic Delivery, May 2011 (Cat. no. 6291.0.55.001) and Australian Labour Market Statistics, July 2011 (Cat. no. 6105.0)

The latest ABS estimates for indicators listed in this quick guide are provided in three statistical snapshot publications produced by the Parliamentary Library titled Small business contribution to economic performance in Australia; Small business employment and working arrangements in Australia; and Count of small businesses in Australia.


[1].     The EAS has been conducted on an annual basis by the ABS since 1990. Over 20,000 employing businesses provide information directly from their financial statements.

[2].     Private sector businesses in the Financial and insurance services industry are not included in the survey. Only private sector businesses operating in Public administration and safety, Education and training and Health care and social assistance are included in the survey.

 

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