Dan Petrie: Why small businesses are on the rise

Small business and freelancing is booming but the data shows working for yourself doesn’t always pay off, writes Data Cruncher Dan Petrie.

The number of companies and small business registrations is booming! Apparently?

Yes, according to the Australian Securities and Investments Commission and any number of commentators who don’t own businesses, the line is that ‘a wave of entrepreneurism has swept across the Australia and Queensland.’

However, this merry tale needs a generous dose of reality splashed on it.

The reality is that employing businesses are cutting costs and in order to maintain profitability, are using contractors or a project specific workforce to achieve outcomes.

For the business, the upside of not having to deal with holiday pay, superannuation and insurance in most cases falls onto the contractor.

While the desire to have a business to call your own typically comes calling in one’s 40s after decades of pointless meetings, the most recent spike in company registrations represents the largest surge in new ABNs since ASIC started recording new entrant in 1999.

New company registrations for the January to June period in 2021 totalled 29,497 representing a near 40 per cent increase on the same period a year earlier.

The most popular time to register a business in Australia is in the first six months of the year and while it is nice to image a start-up boom, the simple fact is that prior to Covid the appetite for self-determination was actually on the wane.

So, the question begs, where did this most recent wave of small business enthusiasm come from?

The business counts data from the Australian Bureau of Statistics release in February notes that Australia had seen an increase of 46,651 businesses across the nation in 2020 but on a closer inspection, the vast majority of these enterprises are non-employing entities.

Over the same period, the numbers of businesses that employed people fell by 1 per cent.

* 5.3 per cent decrease in businesses with 200 or more employees

* 12.3 per cent decrease in businesses with 20-199 employees

* 3.8 increase in non-employing businesses.

Generally speaking, the rise of the one-person company is evident within the ABS data and conceivably supports the claim that many people feel forced into self-employment.

The ASIC data around new companies do not present the types of businesses being registered but thankfully, we do have some clues.

Apart from the endless stream of personal announcements on networking site, LinkedIn which read like self-written corporate obituaries, the rise of freelancers is not stopping any time soon and the home office is most certainly on the rise.

The increase in Officeworks sales while speculated heavily on during the Covid pandemic reveals that sales for the Wesfarmers backed retail mainstay of stationery and computer surged by 20 per cent during the Covid period.

Small business or the rise of the independent contractor has been taking place for the last 40 years as technology and the emergence of the digital economy also have an impact. The last year has simply brought forward that transition.

Why would anyone consider starting a company or small business when the pay is so poor? Picture: iStock

It is worth noting that the Australian Chamber of Commerce contends that between 50-60 per cent of small business owners pay themselves $50,000 annually which when compared to the average full-time salary of $84000 based on ABS data.

It raises a logical question that why would one consider starting a company or small business when the pay is so poor?

For Queensland’s white-collar professionals wanting a full-time role is somewhat challenging in a state where major corporate head offices are few and far between and the market place is incredibly competitive.

Additionally, with many organisations seeking to cut costs, outsourcing work domestically is becoming more popular.

Business registrations are indeed on the rise but the make up of that jump means that many people are perhaps taking a pay cut they never envisioned prior to 2020.

Dan Petrie is the Chief Information Officer firm, Grafa and a former Economic Data Editor at Bloomberg LP who also goes by the name of Data Dan – do you have a data question? Email [e-mail]

Originally published as Dan Petrie: Why small businesses are on the rise