National professional services firm RSA Australia has expressed serious concerns about Australia’s small-business landscape amidst an ageing ownership profile and increasing numbers of businesses being declared insolvent, whether voluntarily or by force.
Recent research found that leaders at the helm of almost 30 per cent (730,000) of Australia’s 2.6 million small businesses are 50 years or older, with just under half of these business owners (340,000) approaching, or already past, retirement age.
At the same time, due to the increased debt recovery activities by the Australian Taxation Office (ATO) and creditors against failing businesses, there has been an increase in insolvencies, with small businesses owing 67 per cent of Australia’s total collectable tax debt of $50 billion – of the 5400 reports lodged by insolvency practitioners in 2022-23, 83 per cent related to small businesses.
RSM Australia Partner of Business Advisory in Brisbane Andy Graham said that while the Federal Government had provided well-received short-term relief to small businesses through measures such as the instant asset write-off and energy rebates, the upcoming Federal Budget needed to address the long-term sustainability of Australia’s small-business sector, with a particular focus on energy supply and supporting innovative entrepreneurs to drive productivity outcomes.
“For small business, this will also require addressing well overdue tax reforms in areas such as employment taxes, intergenerational business transfers and GST,” Graham said. “The latest intergenerational report recognises the economic impact of Australia’s ageing population, but there’s no mention of the ageing profile of small-business owners and what this means for the services that support and sustain communities across the nation.”
Graham added that while there were some positive signs of a new wave of emerging millennial business entrepreneurs, the big question remained about who would take over the hundreds of thousands of existing businesses serving local communities across Australia.
“Australia’s small-business captains have been getting older over the past 40 years reflecting a generational shift in attitudes towards business ownership,” he said. “Concerningly, in 2022-23 the number of new small business entrants (405,000) was only just ahead of the number exiting the business scene (384,000).
“As business advisors, we’ve seen family business owners, in particular, holding on to the reins for longer because they don’t have a succession option in a younger family member,” Graham added.
Graham also noted that investment market volatility had also played a key role with owners of successful businesses calculating they could get a better return on their capital by staying in their business longer rather than taking the proceeds from sale and investing in the market.
“This delayed transition brings risks. What we don’t want to see is small business owners forced into fire sales because of ill-health or to sell the family home because of mounting debts,” he explained.
Graham shared that most small businesses generally had four exit options: family succession; sale; management buy-out; or orderly wind down.
“The most important success factors in transitioning business ownership include being clear about the purpose for sale or succession, being well-prepared, and choosing the right exit process that will put the business in the best possible position to achieve the best-desired outcome,” he concluded.
