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Preliminary data released by the small business ombudsman has painted both promising and worrying signs for businesses on the road to economic recovery.
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Ombudsman data foreshadows challenging future for small businesses
15 December 2020
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The Small Business Counts report by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has revealed that payment times in October have ballooned up to an average of 31 days late, compared to 13 days late last year.
Ombudsman Kate Carnell believes the new figures are an indicator of the challenges facing small businesses in the coming months, with low cash flow the leading cause of small business insolvency.
“While a range of measures taken by the government and the banks have cushioned the blow for small businesses and the economy, our report provides figures that offer some insights about the true state of play and what’s to come,” Ms Carnell said.
“CreditorWatch data cited in our report shows payment times have deteriorated this year. This ongoing problem is having a devastating impact on small businesses.”
The ASBFEO report also notes that insolvency figures have remained artificially low this year due to the government’s economic response measures and the temporary insolvency relief measures.
These low insolvency numbers could belie problems in the sector once support measures are removed next year.
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“The concern around low insolvency numbers in the current climate is that, when businesses that are not viable delay entering external voluntary administration, they continue to accrue debts,” the report said.
“These debts may never be repaid and could have significant negative impacts on the suppliers’ cash flow, which could then ripple through the economy.”
However, Ms Carnell said early data from the pandemic has also shown how resilient and agile small businesses can be in the face of extremely challenging conditions, with two out of five small businesses changing the way they provided products and services in response to the crisis.
“While the true toll this year has taken on small businesses — including the mental health impact — won’t be known for some time, our Small Business Counts report shows that many small businesses have pivoted their operations to adapt to the rapidly changing conditions,” Ms Carnell said.
“It’s been inspiring to hear the stories of small businesses that made a decade’s worth of change in a matter of days and managed to keep their business afloat.
“Small businesses are the engine room of the Australian economy, but they are also hard-working people who have had to overcome huge obstacles in 2020, and our report shows why their recovery matters to all of us.”
Small business overview
The majority of the ASBFEO’s latest report draws from a number of government and non-government data sources and paints a historical picture of the small business sector before the impacts of the bushfires and COVID-19 were felt.
The report uses two definitions of small business, including the ATO’s definition of a business that has a turnover of less than $10 million, and the ABS definition where a business employs fewer than 20 people.
As of June 2019, small businesses accounted for 97.4 per cent of the overall business population, with sole traders accounting for 62.8 per cent.
Micro businesses that employ one to four people account for a further 25.7 per cent of all businesses, while the remainder of the small business category is comprised of businesses that employ five to 19 people, which account for 8.9 per cent of all businesses.
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