Small business
in Australia
What’s ahead
PL
E
2
SA
M
What is it?
Distinction between
small, medium and large
Small business
Key features of a
small business
Contribution
to the economy
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Key knowledge
Students will learn the following about small business in Australia:
1
SA
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–the distinctions between small, medium and large businesses
– the contribution of small business to the economy.
A r e a o f st u d y
PL
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Introducing business
Over 97 per cent of all Australian private sector
businesses are classified as small. This is a
challenging and exciting business sector and its
contribution to the Australian economy should
not be underrated. Small businesses have
been shown to have the ability to dynamically
respond to changing economic conditions.
Governments at both state and federal level
recognise the importance of the small business
sector by appointing ministerial portfolios,
creating policies and improving the levels of
assistance provided to small business.
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What is a
microbusiness?
SA
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Figure 2.1 A small business operator
PL
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Microbusiness is a classification given to small
businesses employing fewer than five employees.
This category of small business now accounts for
80 per cent of all businesses in Australia.
According to the Australian Bureau of
Statistics, more than 67 per cent of all small
businesses in Australia are home-based
businesses – that is around 856 000 businesses.
Working from home can help the business
owner and any employees achieve a balance
between work and family commitments by
allowing flexible working hours. It also has
the advantage of cutting overheads, e.g. rental
of premises. Two well-known Australian
businesses that started their existence in a home
or garage are Lonely Planet Publishing and
Rip Curl.
capital
funds invested in a
business, which form
one of the main inputs
for the production
process
small business
an independently
owned and operated
business, under close
control of its owner
who has contributed
the majority of the
operating capital and
is the main decision
maker; the business
may employ up to
20 people (nonmanufacturing) and 100
people (manufacturing)
microbusiness
small business that
has fewer than five
employees
What is a small
business?
The Bedall Report 1990 and the Australian
Bureau of Statistics define a business as small if:
Activity 2.1
1List five businesses that would fall into the
category of ‘microbusiness’.
2 Identify three advantages and three
disadvantages associated with home-based
businesses.
3Describe the advantages that technology has
given to the home-based business operator.
• it is independently owned and operated
• it is closely controlled by owners/managers
who contribute most, if not all the operating
capital of the business
• the owners/managers are the main or
principal decision makers.
For numbers of people employed, the
following statistics are commonly accepted.
A small business is one that employs up to:
• 20 people in non-manufacturing industries
• 100 people in manufacturing industries.
Figure 2.2 A home-based business that is a microbusiness
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How small business
helps our economy
SA
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PL
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Small businesses represent 95 per cent of the total
number of businesses in Australia. This sector
is an important generator of jobs. Taxation is
paid by both businesses and employees, which
then helps to fund the goods and services the
government provides to the community, such as
public health and education.
Small businesses can perform the role
of nurturing, promoting and developing
entrepreneurs. Small businesses can also
provide functional support to large organisations
that use outsourcing. For example, an
organisation may outsource the non-core
activity of providing coffee to their staff during
the working day rather than employing a ‘tea
person’. A small business that has combined
entrepreneurship with such an activity is
Xpresso Delight, which provides gourmet coffee
machines to workplaces with upwards of five to
10 employees. This rapidly growing franchised
business in 2010 had 140 franchises, and has set
targets of 200 franchises by the end of 2011 and
250 franchises by the end of 2012.
Many small businesses offer services or
routine tasks to other companies and individuals,
reflecting our society’s need for greater
service-oriented industries, e.g. property and
business services, personal, cultural, tourism,
recreational, health, community and retail.
According to the March 2008 Sensis Consumer
Report, approximately 52 per cent of Australians
now outsource some of their domestic and
personal tasks. The most popular of these is
meals, with 19 per cent eating at restaurants
and 18 per cent purchasing take-away meals,
followed by personal grooming and cleaning,
which account for 14 per cent. Dial-an-Angel
is an example of a business that has grown
from a small family-run home help company to
the only national agency that specialises in the
provision of home and family care.
In addition, small businesses have stepped
into the role of providing many of the former
traditional government functions. Previously,
government departments would be involved
in the direct recruitment of graduates from
universities. Small personnel consultancies are
now often used to conduct the initial stages
of recruitment and selection of graduates.
This can involve the initial online application
***INSERT AW 0205***
Figure 2.3 Xpresso Delight is a rapidly growing
franchised business.
entrepreneur
a person who is willing
to combine an element
of risk taking with their
own knowledge and
skills to make a profit
outsourcing
process of using
another business to
undertake some task or
work process
services
non-material objects
produced by people for
the benefit of others,
e.g. legal advice
service-oriented
industry
those businesses that
provide a service to
a client, e.g. medical,
accounting, legal
advice
***INSERT AW 0206***
Figure 2.4 insert copy
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operators have a passion for doing something
to help society both locally and globally. The
economic contribution they make is therefore
less direct in dollar terms, but important when
viewing it in terms of social responsibility.
In the past decade, many medium- and
large-scale organisations have been aggressively
downsizing their operations. This has provided
an opportunity for salaried employees who have
been retrenched to form their own businesses
as consultants and contractors. These same
large businesses often rely on small businesses
for their supplies of raw materials, component
parts, technology and skilled workers or any
other required services or non-core activities.
PL
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downsizing
occurs when an
organisation reduces
its operations; may
result in office or plant
closure, and reduction
in functional positions
(jobs)
process, followed by screening and testing of
applications to create a short list to be submitted
to the relevant government department. On a
local level, garbage collection may now be
performed by a small business rather than by
council employees.
Vital growth industries, such as medical care
and biomedical research, are often entered into
by small business operators. While many of
the growth industries have a large associated
risk, small business entrepreneurs are willing to
accept the risk for the opportunity of greater
financial benefit in the long term. As the small
business owner often does not have a board of
directors and shareholders to answer to, they
assume the risk themselves. Other small business
Activity 2.2
Read the article then answer the questions that follow.
‘Etiko – it means ethical’
SA
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Nick Savaidis, a former high school teacher,
is the founder and Managing Director of Etiko,
an Australian-based brand committed to
sourcing overseas products that are Fairtradecertified, sweatshop free or from worker or
farmer-owned cooperatives. This means that
the sports and clothing products are made by
people who earn a fair wage and have good
working conditions. Etiko has won many
state and national business awards including
the 2008 Banksia Environmental Foundation
Award, the 2009 Sustainability Victoria Greenleaf Award and a 2008 Telstra Business Award
for Social Responsibility.
Etiko’s commitment to social justice goes
beyond fighting child labour and sweatshops,
as the purchase of its products also helps fund
community development, micro-credit and
health care programs in countries around the
world. As producers of sports balls, it was one
of three enterprises in the world to receive the
International Labour Organisation accolade:
‘Without Child Labour’. This small business is
based at its warehouse in Ferntree Gully, from
which it distributes its range of highly coloured
sneakers, sports balls and selected items of
clothing to be sold at shops such as Oxfam and
Friends of the Earth.
***INSERT AW 0207***
Figure 2.5 Etiko means ethical.
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Questions
Visit the Etiko website (www.etiko.com.au) to help you answer the questions below.
1Why do you think Nick Savaidis started this business?
2Describe the issue at the centre of the dispute.
3 This business has adopted a socially responsible approach to its products and business operations.
aProvide two reasons why you believe this to be a sound approach.
b Provide two reasons why you believe this approach may not succeed.
PL
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4 From which countries does Etiko source its products?
5 Describe the concept of a ‘micro-credit’ loan.
6 Discuss whether you believe that this small business is helping our economy.
Key features of business
SA
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To gain an understanding of the differences between businesses, whether small, medium or large, it is
useful to look at their key features. Once these are understood, it becomes easier to distinguish between
them. Key features of a business are:
• size based on number of employees
• legal structure
• business activity
• public or private sector.
Size based on number
of employees
Public or
private sector
Small business
Legal structure
Business activity
Figure 2.6 Key features of a small business
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Very
small/micro
Fewer than
five employees
PL
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Small
Fewer than 20 employees –
non-manufacturing industry
Fewer than 100 employees –
manufacturing industry
Medium
Between 20 and 199 employees
Large
More than 200 employees
Figure 2.7 Classification of business by size
SA
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The number of employees within a business forms the basis of the Australian Bureau of Statistics
(ABS) classification of a business as being very small, small, medium or large.
Activity 2.3
Read the article then answer the questions that follow.
Case study
FigureBusiness
2.7 Classification
A of business by size.
David runs a very successful bakery in a small suburban shopping centre. The shop has become so
successful due to the range and quality of the bread. To make sure that there is always a plentiful
supply on the shelves, David and his three qualified bakers, assisted by three apprentices, start
work at 4 a.m. each day. By lunchtime they are ready to finish their day’s work. During weekdays,
the shop is usually staffed by three shop assistants who only work Monday to Friday. On the
weekends, the shop becomes hectic, with customers crowding into the shop. To help manage the
crowd, a number system is used, which means that the six part-time shop assistants, who only
work over the weekend, are able to provide quality customer service.
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Business B
Business C
have 25 experienced nursing staff assisted by
50 aged-care assistants who help residents
with all their needs. The residents’ laundry is
done on a daily basis by the five laundry staff.
All meals at Wharton Lea are prepared by the
five catering staff according to the individual
residents’ dietary requirements and are served
to them in the dining room.
PL
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Barry
runs
a
red
gum
furniture
manufacturing business in country Victoria.
He makes large items of furniture, such as
tables, chairs, sideboards and bookshelves,
with the off-cuts of wood being made into
chopping boards and bowls. His business has
grown to the stage where he now employs 19
other craftspeople in the factory to help him
keep up with orders. The sales showroom
is located in the main street of the town and
is very popular with both locals and tourists.
Barry does not feel comfortable dealing
directly with customers, preferring to leave the
sales negotiations to his five sales staff.
The Body Shop Australia is a fully Australianowned company that runs the Australian
operation of the world-renowned Body
Shop established by Dame Anita Roddick in
Brighton, England, in 1976. The first Australian
store was opened in Melbourne in 1983 and
since then more than 80 stores have opened
across Australia.
SA
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Wharton Lea offers three levels of
accommodation – independent living, hostel
and nursing home facilities – to people
who need extra care and assistance as they
progress through their old age. Residents are
required to pay a bond to enter the facility and
then a weekly service fee. At Wharton Lea they
Business D
Question
Classify each of the businesses as small, medium or large. Justify your choice of classification.
Legal structure
There are two main types of legal structure
for businesses operating in the private
sector: incorporated and unincorporated.
Organisations that are incorporated are officially
registered as a company, are a separate legal
entity and are subject to the requirements of
the Corporations Act 2001 (Commonwealth).
Because of the separate legal life created,
it acts to limit an individual’s liability for any
debts incurred by the incorporated body to
the extent of their ownership (shareholding) in
that body. Incorporated bodies can be set up
as a private company, public company, trust
or cooperative.
Many organisations, such as sole traders/
proprietors or partnerships, choose to be run
as unincorporated businesses. This means that
there is no difference between the business and
its owners, with the owners having complete
legal responsibility and liability for all the
actions of the business.
See chapter 4 for detailed descriptions of
these forms of legal ownership.
debt
a sum of money owed
by one person (debtor)
to another person
(creditor)
proprietor
owner of a registered
business name
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Business activity
Secondary sector
business activity that
relates to manufacture
and construction
of goods
Tertiary sector
business activity that
provides services
for consumers and
other business
Quinary sector
industry sector
that represents
accommodation,
restaurants and cafés,
health and community
services, cultural
and recreational
services, personal and
household services
Unincorporated
business
Incorporated
business
• Sole trader
• Partnership
•
•
•
•
Private companies
Public companies
Trusts
Cooperatives
Figure 2.8 Types of private sector businesses
Table 2.1 Business activity sectors
Level of sector
Primary
Secondary
Tertiary
Types of business/service
Mining, agriculture, fishing and forestry. Those industries concerned with land or sea
Manufacturing, processing, construction, fabrication of final product
Wholesaling, retailing and transport
SA
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Quaternary sector
industry sector
that represents
communications,
finance, insurance,
property, business
services and education
Private sector
PL
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Primary sector
businesses that operate
in industries that are
concerned
with agriculture,
fishing and extraction
of raw materials
Businesses produce a vast range of different
goods and services; however, it is possible to
classify these into three broad types of business
activity: primary sector, secondary sector
and tertiary sector. These three categories also
link to the three stages involved in transforming
natural resources into finished goods and
services. The third broad category, tertiary,
is now commonly divided into two further
subcategories: quaternary sector (informationbased) and quinary sector (household servicesbased). These ‘new age’ industry subsectors are
significant contributors to the tertiary industry
sector. Table 2.1 outlines the business sectors as
well as their contribution to the national revenue.
a Quaternary
Information processing, finance and insurance, property and business services education
b Quinary
Hospitality, health and social assistance, personal and other services
Activity 2.4
Identify the business activity sector (primary, secondary, tertiary, quaternary or quinary) for the
businesses listed below. The first one has been done for you.
Name of business
a YMCA
b Wesfarmers
c BHP Billiton
d Telstra
e Village Cinemas
f McDonald’s Restaurants
g Qantas
h John West
i ANZ Bank
j CSL Limited
k Billabong
l Herald Sun
Business activity sector
Quinary
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Public and private sectors
How to distinguish
between small,
medium and large
businesses
Having gained an understanding of the key
features of businesses in the previous section,
it is now possible to make distinctions between
the various characteristics of businesses. The
number of employees working at a business
– while a very important form of determining
the classification of a business – is only
one of the distinguishing features used as a
basis of classification. There are many other
distinguishing characteristics: forms of legal
ownership; predominance of industry sector;
decision-making structures; access to finance
and capital; business structure; products and/or
services offered and location of operations
PL
E
The Australian economy is divided into two main
areas: public and private sectors. The public
sector includes departments and agencies of all
three levels of government (federal, state and
local), as well as government business enterprises.
Types of services these organisations provide are
health, education, defence and law enforcement.
Previously, the government also owned and
controlled many of the industries that provided
infrastructure, such as telecommunications,
utilities and public transport. The recent trend
in Australia has been towards selling these
government-operated businesses to the private
sector. This process is called privatisation. The
Commonwealth Bank of Australia was once
owned and operated by the federal government,
but has been privatised, with its ownership
now controlled by individuals and institutional
shareholders. The private sector comprises
businesses owned and controlled by individuals
or groups of individuals. The majority of business
activity is undertaken by this sector.
privatisation
the process of selling
government-owned
businesses to the
private sector
SA
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Table 2.2 Distinguishing characteristics of small, medium and large businesses
Characteristics
Small
Medium
Large
Size – number of
employees
Microbusiness – fewer
than five employees
20–199 employees
More than 200 employees
Sole trader/proprietor
Partnership
Company
Partnership
Company
Cooperative
Company
Cooperative
Trust
Up to 20 employees for
non-manufacturing
Up to 100 employees for
manufacturing
Common forms of legal
structure
Trust
Ownership
Private – independently
owned and operated
Private and public
(partners/shareholders)
Private and public
(shareholders)
Business structure
Simple
Formal or informal
Formal – policies,
procedures developed
organisational chart
based on function,
products, geography or
division
continued next page
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Characteristics
Small
Medium
Large
Decision making
Owner/manager
Management team
Management team
Finance/initial capital
Owner/family
Owner/family
Shareholders
Private investors
Financial institutions
Financial institutions
Limited
Product/service range
Small
Sector
Greater opportunity for
large product range
One outlet
Multiple outlets possible
Possibility of global
operations
Private
Private and public
Private and public
Primary
Primary
Primary
Secondary
Secondary
Secondary
Tertiary
Tertiary
Tertiary
Quaternary
Quaternary
Quaternary
Quinary
Quinary
Quinary
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Industry sector
classification
More easily obtained
Possibility of greater
diversity in range of
products/services
Possibility of diverse
range of products/
services
Location
More access
PL
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Access to business
capital
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• An understanding of organisations can be
gained by examining them with reference to the
following four characteristics:
• Businesses are defined as being small if they are
independently owned and operated, and if they
are closely controlled by their primary decision
makers (owners/managers).
–– size based on number of employees
–– legal structure
–– business activity
–– public or private sector.
• It is possible to distinguish a small business
from either a medium or a large business
on the basis of employee numbers, form of
legal structure/ownership, decision-making
processes, provision of finance and capital,
business structure, product and service range
and location of operations.
PL
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• Employee numbers for small business are between
one and 20 employees for non-manufacturing
businesses and up to 100 employees for
businesses involved in manufacturing.
• Small business assists our economy by providing
jobs and career opportunities. It provides a
range of services and routine tasks to large
organisations and even performs some traditional
government functions.
1 In which industry sector would a farmer belong?
a Quaternary
5 Match the terms to the correct definitions below.
Private sector
Downsizing
Primary industry
Privatisation
Microbusiness
the quaternary industry?
Entrepreneur
a A large nursing home
Secondary industry
b A poultry farm
Outsourcing
c A newspaper publisher
Public sector
d A take-away hamburger shop.
Company
c Secondary
SA
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d Primary.
2 Which of the businesses below would form part of
3 Which of the following groups consist of
unincorporated businesses?
a Private companies, partnerships and sole
traders
b Public companies, cooperatives and trusts
c Partnerships and sole traders
d Partnerships, sole traders and trusts.
4 Which of the following classifications applies to a
business enterprise with eight employees?
a Large
b Small
c Micro
d Medium.
a Includes the departments of all three levels of
government, as well as government business
enterprises.
b Consists of businesses that involve canning
fish and fruit.
c A person who is willing to combine an
element of risk taking with their own
knowledge and skills to make a profit.
Chapter summary
questions
b Tertiary
Chapter summary
• Approximately 97 per cent of businesses in
Australia are classified as small and form an
important part of our economic activity.
d Using another business or person to
undertake some task or activity rather than
doing it within the business.
e The process of selling government-owned
businesses to the private sector.
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f Includes businesses owned and controlled
by individuals or groups of individuals.
g Consists of businesses that extract natural
resources.
h Reducing your business operations.
A business that consists of fewer than
five employees.
j
A business that operates as a separate
legal entity.
PL
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i
SA
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extension
question
Both the quaternary (information-based) and
quinary (household services-based) business
activity sectors are becoming very important
contributors to Australia’s gross domestic
product (GDP). Discuss why you believe these
tertiary subsectors are flourishing. The following
sample plan may provide you with some ideas
on how to handle this task.
Sample plan
Introduction
Define the key terms: quaternary sector, quinary
sector, gross domestic product.
Body
Identify reasons why these businesses are
flourishing, e.g. decline in other areas, change
in social or demographic factors.
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PL
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SA
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