What is a Small-Medium-Enterprise (SME) in Australia?

The concept of a 'small business' or 'small-medium enterprises' (SMEs) in Australia is inconsistent and can have different meanings when used.  To cause even more confusion when reading an article about SMEs, definitions used in Australia do not necessarily apply overseas.

In Australia

The Australian Taxation Office (ATO) defines as 'small business' (whether an individual, partnership, company or trust) as a business that has an aggregated annual turnover of less than $2 million.  But this was only before 2016/2017.  From 1 July 2016, the definition of small business changed to a business with an aggregated turnover of less than $10 million [2]

The new threshold of $10 million was announced in the 2017/2018 budget [4], to enable the inclusion of 90,000 additional businesses, with the aim of transforming and boosting the economy.  The budget stated that "small business is the engine room of our economy, making up to 99 per cent of all businesses and contributing $380 billion to the economy"; and stressed that the move meant that the Australian Government was intent on creating the right environment for small businesses to grow.

The Australian Bureau of Statistics (ABS) on the other hand, uses a different definition - which is the number of persons employed:

  • a micro-business employs between 0-4 persons
  • a small business, between 5-19 persons
  • a medium business, between 20 and 199 persons; and
  • a large business employing 200 or more persons [3]

 As many of the statistics and tables are from ABS publications, this article will use the ABS definition of 'small business' to include 'micro-business' as well, unless otherwise described.

The Small Business Sector's Contribution to the Australian Economy

Small business plays a significant role in the Australian economy particularly in terms of their contribution to employment and production (IVA).

 

Industry Value Added (IVA) is the increase in the value of goods and services as a result of business activity [5], and contributes to productivity (gross domestic product - GDP).

Characteristics of Innovation in the Small Business Sector

 Innovation is related to the activities that bring new ideas to life.

Only 40 - 60 per cent of small businesses are engaged in innovative activities, compared to 80 per cent in large companies.

 While the size of business makes relatively little difference in the level of product (goods and services) innovation, the disparity between small and large business is most noticeable in the areas of operational processes (22% vs 44%); organisation and management (29% vs 535); and marketing methods (26% vs 40%).

  • Innovation leads to more productivity, and SMEs that invest in technology stand a better chance of meeting the challenges of competition, because
  • innovation is clearly a driver of the success of those firms that succeed at the expense of the ones that do not.

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READING LIST

  1. ASBFEO. (2016). Small Business Counts: Small Business in the Australia Economy. The Australian Small Business and Family Enterprise Ombudsman.
  2. QC 50223. (2018). Work out if you're a small business for the income year. Australian Taxation Office. [Retrieved 2018, Jan 25]; Available from: https://www.ato.gov.au/Business/Small-business-entity-concessions/Eligibility/Work-out-if-you-re-a-small-business-for-the-income-year/.
  3. Gilfillan, G. (2015). Definitions and data sources for small business in Australia: a quick guide. Parliamentary Library Research Paper Series 2015-2016: . [Retrieved 2018, Jan 28]; Available from: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1516/Quick_Guides/Data.
  4. Budget 2017-2018. (2017). Stronger growth: Delivering for small businesses. Budget 2017-2018. [Retrieved 2018, Jan 25]; Available from: https://www.budget.gov.au/2017-18/content/glossies/jobs-growth/html/jobs-growth-00.htm.
  5. Gilfillan, G. (2018). Small business sector contribution to the Australian economy. Parliamentary Library: Research Paper Series 2018-2019. [Retrieved 2018, Jan 25]; Available from: https://parlinfo.aph.gov.au/parlInfo/download/library/prspub/6272043/upload_binary/6272043.pdf.
  6. Connolly, E., D. Norman, and T. West. (2018). Small Business: An Economic Overview. Reserve Bank of Australia. [Retrieved 2018, Jan 25]; Available from: https://www.rba.gov.au/publications/workshops/other/small-bus-fin-roundtable-2012/pdf/01-overview.pdf.