Why no one wants to start a small business any more

Alessandro Panetta has been hanging out in cafes nearly his whole life. At the age of 12, he started helping out at the family-owned cafe. At 24, Panetta and his brother set up their own venture, a small espresso bar on Sydney’s bustling York Street. When that came to a natural end, he dabbled in consulting for a few years before opening a cafe in Waterloo.

The pair managed to keep it afloat throughout the pandemic, even despite the damaging effects of lockdowns. But by the end of 2022, the cost of just about everything – from ingredients such as coffee and milk to electricity and wages – had shot up. A looming 30 per cent rent rise would tip the cafe into unprofitability.

Alessandro Panetta is a former cafe owner turned consultant to food and hospitality venues.Credit: Rhett Wyman

So they decided to shut up shop.

“What we realised was that if we were to stay and renew the lease at the higher amount, we wouldn’t have been able to sustain it,” he said.

Now, Panetta is on the other side of the fence working as a consultant to landlords by advising hospitality venues on how they can improve sales and get on top of their costs. Many of their struggles are familiar to him.

“A lot of the business owners I talk to are tired,” Panetta said.

“When you run a small business, you need to come to work with lots of energy and lots of positivity every day. After two to three years of COVID, a lot of cafe owners lost a lot of that energy and enthusiasm.”

Like Panetta, other Australians have found the financial and emotional costs of running a small business don’t add up. Higher interest rates have made loans more expensive; support payments provided during the pandemic are long gone, as is the tax office’s willingness to keep deferring several billion dollars’ worth of debts.

At the same time, small businesses have been unable to meaningfully pass on these costs to consumers, who are pulling back their spending in a range of areas, particularly cafes and restaurants.

With lower foot traffic, reduced cashflow and mounting bills, small operators are up against the wall. Insolvency figures from ASIC show that businesses with fewer than 20 employees made up 82 per cent of companies that went under in the past year, with hospitality and construction outfits hit hardest.

Who wants to start a small business any more?

Australia’s 2.5 million small businesses, which contribute a third of national GDP at $506 billion, are making up a smaller part of the economic pie than they did a decade ago.

Advocates fear that the climbing rate of business closures like Panetta’s are going unnoticed.

“[Operators] feel neglected. They feel like they’re an afterthought,” said Council of Small Business Organisations Australia (COSBOA) chief executive Luke Achterstraat.

For those watching this space, Panetta’s story isn’t an anomaly but a concerning trend. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) notes that the average age of small business owners has steadily increased to 50.

“Seventeen per cent of businesses [were] owned by people under the age of 30 in the 70s. It’s now 9 per cent,” said Billson. “Now, something’s going on.”

Small business ombudsman Bruce Billson wants to ensure the plight of small business is front of mind for politicians.Credit: Wayne Taylor

Over the years, the burden of regulation and the prohibitive barrier of high costs have gotten in the way.

“It was the jam of delighting customers with a passion, a new service, a new option, a new opportunity,” said Billson, who was the minister for small business under the 2013 Abbott government. “That’s what motivates an enterprising man and woman, not the business of running the business.”

He worries that the gap left by dwindling small businesses, who don’t have the resources to navigate layers of compliance, will get gobbled up by large corporates.

“What I want to see and why I get out of bed is to make sure that concerns and interests of small businessmen and women are front of mind, are right on the radar screen, and are central to deliberations of politicians of governments and regulators.

“These small businessmen and women, they don’t have a team of lobbyists, a government relations department.”

Too-hard basket

At a summit organised by COSBOA this week, business representatives and politicians discussed the barriers holding back the small business sector and frequently returned to a common gripe: the stifling effect of increasingly complex regulation, with many expressing that the Albanese government was adding to, rather than reducing, red tape.

In its 2024 budget submission, COSBOA commended the federal government on their focus on easing cost of living pressures for households, but called for more attention on the cost of doing business.

Achterstraat stressed that government processes had to improve to promote a more dynamic small business sector.

“There is a clear need for small business relief measures but if they are not coupled with a focus of better regulation and productive policy, they will be in vain.”

COSBOA chief Luke Achterstraat and Business Council of Australia chief Bran Black at the 2024 COSBOA national summit.Credit: Peter Rae

Small businesses want streamlined payroll taxes across various jurisdictions, the removal of stamp duty, a singular definition of small business, and the instant asset write-off threshold heightened, according to COSBOA’s federal budget wishlist.

Those within government bodies share similar concerns. NSW Small Business Commissioner Chris Lamont also said the ageing cohort of small business owners was a “major and immediate challenge for all levels of government” and pointed directly to the heavy-handed approach to regulation as a key factor.

‘There is a clear need for small business relief measures but if they are not coupled with a focus of better regulation and productive policy, they will be in vain.’

Luke Achterstraat, chief, Council of Small Business Organisations Australia

“I fear there is a prevailing or starting assumption that businesses can easily adapt and comply with any new mandate at zero or negligible cost,” he said. “The accumulation of new red tape … is causing too many businesses to either stagnate or worse, exit.”

Arguably the most problematic piece of new policy are Labor’s industrial relations reforms, welcomed by unions but decried by businesses from all ends of town and lawmakers across the political spectrum as confusing, restrictive and onerous.

The Closing Loopholes laws – broken into two acts and rolled out progressively, starting from December 2023 through to 2025 – makes major changes to workplace rules by changing the definition of a casual employee, creating minimum standards for “employee-like” (gig economy) workers and truck drivers, giving the Fair Work Commission the power to set “same job same pay” rules for some employers, and more.

Business leaders have been bewildered by the legislation, its implications, and the ability of small business operators to interpret it. In a panel, Master Builders Australia chief executive Denita Wawn and recruitment and staffing industry body Recruitment and Staffing Association’s Brooke Lord said their members were most concerned about not being able to control the terms of their work.

Prime Minister Anthony Albanese: “Our government is pro-business and pro-worker.” Credit: Peter Rae

It hasn’t just been the new industrial relations rules that have caused frustration: the federal government has been criticised for the hurried way legislation was “jammed” through parliament. Consultation with some business groups was conducted behind closed doors in a matter of weeks rather than months with the unusual condition of non-disclosure agreements.

Business Council of Australia chief Bran Black, who represents some of Australia’s biggest employers including the big four banks, mining giants, tech firms and more, said he struggled to get answers about the legislation’s economic implications.

“There were so many holes,” said Black. “So when we talk about consequence and effect, we don’t really know what they are yet.”

We’re listening, says PM

In his own address to the small business summit, Prime Minister Anthony Albanese said small businesses would “again be front and centre of our thinking” in the coming federal budget, hinting at further relief on energy bills.

“Our government is pro-business and pro-worker,” he said. “Our government will keep working with you and keep listening to you.

“We understand that there are no good jobs, fair wages or decent conditions for employees, without employers. That’s the constructive and balanced approach we’ve sought to bring to our industrial relations reforms.”

Wawn said she had a differing view to the prime minister on how the process went. “We talk about sham contracts. In my opinion, it’s sham consultation,” she said.

Opposition Leader Peter Dutton has been quick to accuse Albanese of “show[ing] nothing but contempt” for small business by making matters “even more bureaucratically complex” and said CEOs and company chairs had privately aired dissatisfaction about the reforms.

Asked to give the government a score out of 10 for their support for small business, Wentworth MP Allegra Spender gave a score of zero and Fowler MP Dai Le scored “minus 10”.

“Everyone talks about small business being the backbone of the economy, but we have to justify the actions, and the difference it makes,” said Spender.

On a day-to-day basis, most small businesses operators aren’t monitoring politicised debates about complex industrial relations laws. Panetta has noticed he’s had to provide more assistance than usual on cost control and profit and loss statements.

Dai Le MP, Member for Fowler; Allegra Spender MP, Member for Wentworth; Kylea Tink MP, Member for North Sydney; Zali Steggall MP, Member for Warringah.

He trusts the government is doing what it can to ease inflation pressures, but also sees the amount of paperwork piling up.

“You’ve got all sorts of things – it could be your liquor license, food safety requirements, development approval requirements, trading hours. You’re navigating those things all the time,” Panetta said.

“That is an ongoing challenge for small business.”

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