Too small to fail

Half of all small businesses fail, right? Well, no, not at all. Despite a stream of statistics disproving this common myth the failure rate of small business in Australia remains overstated. 

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According to IBISWorld founder and director Phil Ruthven, the veteran analyst of the Australian business scene, while some businesses inevitably close it isn’t always because they fail – and in fact most founders which shut down their operations do so “without losing their shirt”.

"There are not many that really fail in the sense it's often made out to be.” – Ruthven

I’ve known Phil for many, many years and we’ve banked his business for decades. He is extremely insightful about what is happening in the small-to–medium-sized business sector and his observations here gel completely with what we see as a banker to business: this is a vibrant sector which is constantly reinventing itself.

Australia Bureau of Statistics show around 260,000 businesses a year close down in Australia - a little over 10 per cent of the total 2.2 million businesses in the country.

There're two sorts of failures,” the veteran business analyst and founder of the Ruthven Institute tells bluenotes on video and podcast. “The failure rate of incorporated businesses is something like… one and a quarter per cent a year right now. It's very low.

“If you're an unincorporated business like a sole trader or a partnership the failure rate is exactly the same - about one and a quarter per cent a year.” 

We find in business lending it is common to see SME operators start multiple businesses before settling on the most-successful one, leaving the others behind - or even abandon something simply because they have found a better offer. None of these fit the traditional definition of ‘failure’.

“There are not many that really fail in the sense it's often made out to be,” Phil says. “And because most businesses today are service businesses you're not stuck with an awful lot of capital buried in there.”

Expect services-based business to be a huge growth area in the future, Phil says. While one third of home tasks have now been outsourced – see the boom in homemaker services such as Airtasker - there are still two thirds to go, fertile ground for wily entrepreneurs.

“Every industry is created by one word and it's outsourcing,” Phil says. “We've now decided to outsource more services from home.”

“Getting rid of one third of all the household chores and activities has created three million jobs.”  

What we are seeing more and more is small businesses being started by people who keep their existing job – rather than having more traditional security, their security is the income from their ‘regular’ job.

You can watch the video and listen to the podcast above to find out more.

Mark Hand is Group Executive, Australia Business & Private Banking at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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