Businesses in Australia

Transcription

1 Businesses in Australia IBISWorld Newsletter July 2016 Phil Ruthven, Founder This year should end with Australia having 2.1 million active trading businesses, generating a GDP of almost $1.7 trillion, revenue of $5.0 trillion and employing 12.1 million persons. The exhibit below shows the key statistics associated with the nation s businesses. Businesses at a glance 2015 Active trading businesses 2,121,235 Entry rate 13.4% (c. 285,000) Exit rate 12.4% (c. 263,000) Average life 3 years Most likely to survive: those with revenue over $2 million Total revenue $4.8 trillion Average revenue $2.26 million Most common revenue <$200,000 Employment: -61% no employees -28% 1-4 employees -9% 5-19 employees -2% employees ->1% 200+ employees Ownership: -Companies 750,000 -Sole proprietors 550,000 -Trusts 520,000 -Partnerships 300,000 -Public sector 600 SOURCE: IBISWORLD 01/07/16 More than one in five households own a business. We are not quite a nation of capitalists, although nearly all households own shares in businesses directly or via their superannuation. Averages can be deceiving, but the average business is around 12 years old, is in a service industry (70.0% of the nation s GDP), has a revenue of $2.3 million, employs six people, and is currently growing revenue at around 3.0% pa in a slow-growing economy with no inflation. The nation s entrepreneurial drive is alive and well, as around 285,000 new businesses started up in However, a sobering note is that some 263,000 businesses closed, meaning we added a net 22,000 businesses to the total. The majority of the businesses that closed had no employees, which is true of some 61% of the total 2.1 million businesses. The majority of businesses have an annual revenue of over $200,000, while the average of all businesses is $2.3 million. And it seems that those businesses with revenue over $2 million have the best prospects for surviving.

2 The revenue size of businesses The number of businesses in various revenue size categories is shown in the chart below. The so-called big-end-of-town is significant. Some 312 enterprises with revenues over $1 billion in 2015 accounted for almost 30% of the nation s $4.8 trillion total revenue. Enterprises with over $10 million in revenue account for around half of all revenue with just 0.6% of the number of businesses, meaning that the SME sector generates the other half, but with 99.4% of all enterprises. Size of Enterprises in Economy Employing businesses by revenue, % Gen. Govt. 14.6% > $10 billion Giant corporations 4.0% GBEs 4.0% Very small 12.0% $0.1-1 million Small 15.5% $1-10 million Small-medium 12.5% $ million Medium-large 15.2% $1-10 billion Big corporations 7.7% $0.1-1 billion Large corporations Total revenue: $4.8 trillion The SME sector has come a long way since the end of the Industrial Age and the emergence of the new Infotronics Age of service industries and the IT revolution in the mid-1960s. The sector s share of the nation s revenue 50 years ago was around 30%; but is now almost equal in importance to the big end of town. Clearly it has been the SME sector that has pioneered the new service industries via household functions outsourcing, business non-core functions and overseas outsourcing to Australia (tourism, educations business services, etc.). Franchising has been a significant contributor to the faster growth of SMEs, not only in new retailing but also in new household and business services.

3 Where the businesses are In geographic terms, numbers follow population levels across our states and territories, with New South Wales and Victoria each having a slightly higher share of businesses than their population share. But when it comes to industries, the number of businesses does not align to the economic or revenue importance of industries due to different average sizes, degrees of capital intensity and automation of businesses in the various industries. The distribution of the 2.1 million businesses in 2015 is shown in the chart below. Number of Enterprises by Industry Percentage of total enterprises, June 2015 Quinary Personal & Other services 4.2% Cult. & Rec. Services 1.2% Health 5.6% Hospitality 4.1% Quaternary Education Govt. Admin Admin & Support Prof. & Tech. Services Rental, Hiring & Real Estate Finance & Insurance Info Media & Communications 1.3% 0.3% 3.8% 12.0% 11.0% 8.7% 0.9% Unknown 1.7% Total enterprises: 2,121,235 Primary Agriculture 8.5% 0.4% Secondary Manufacturing 3.9% Utilities 0.3% Construction 16.3% Tertiary Wholesaling 3.6% Retailing 6.2% Transport 6.0% SOURCE: ABS AND IBISWORLD 01/07/16 The average revenue in each industry division varies enormously, as the chart below reveals.

4 Average industry revenue per enterprise $ million, Public Admin Utilities Telcos Wholesale Manufacturing Finance Education Retail Trade AVERAGE Health Arts & Rec Construction Transport Hospitality Pers Services Admin/support Tech Services Real Estate Agriculture National revenue $4.8 trillion Number of trading businesses 2.12 million Revenue ($ million) Five of the nation s 19 industry divisions account for almost 60% of all businesses: Construction (16.3%); Professional & Technical Services (12.0%); Rental, Hiring & Real Estate Services (11.0%); Finance & Insurance 8.7%); and Agriculture (8.5%). Interestingly, these five industries account for just 33.0% of the nation s revenue with 58.0% of all businesses. Indeed, 10 industries have an average revenue much lower than the overall average of $2.3 million per business. The three lowest are: Agriculture ($427,000); Rental & Real Estate ($620,000); and Professional and Technical Services ($680,000). The average farmer has assets of over $2.6 million, which explains why with revenue of just one-sixth that level Agriculture is the least profitable of all private sector industries in Australia. The net profit (after expenses and taxes are deducted from the low average revenue) gives a long-term average of 2.3%, or less than half the 10-year bond rate over the same period. Even with capital gains, which other industries enjoy too, Agriculture has averaged a total return of less than 6%. A way of life more than a business, as is often sadly stated. Virtually all the service industries have higher average profits using a sixth of the assets of farmers. At the other end of the spectrum, nine industries have business revenues higher than the allindustries average. The three biggest are: Public Administration and Safety ($74.6 million); ($30.3 million); and Utilities ($21.3 million). However, their fortunes are not great: Government is essentially a not-for-profit (NFP) sector; profitability yo-yos across decades depending on commodity prices; and utilities have had a low average return on shareholder funds for a long time. So, the big end of enterprise size does not necessarily do better than the least-profitable small end.

5 The chart below confirms this by looking at the profitability of the nation s 100 largest businesses with a combined revenue of $1.1 trillion (23.0% of the nation s $4.8 trillion). Only two industry divisions have done well over the past 5 years, and the average profitability of 10% on net assets is very low by WBP standards. Australian Profitability Biggest 100 Companies (based on revenue) Return on Shareholder Funds (after tax) five years to Rental/Real Estate Media & Telcos Retail trade Wholesale trade Financial Arts & Rec AVERAGE Construction Prof. & Tech Utilities Manufacturing Health care Admin/Support Public Admin Transport ROSF Percent As said earlier, it is the smaller businesses the SMEs and the smaller corporations that are doing better in terms of growth and, it seems, profitability. Fastest growing opportunities In this new century, already nearly a sixth completed, new businesses are being created faster in coastal cities around the nation s perimeter and states of Queensland, Western Australia and the Northern Territory. In terms of industry, it is Health, Professional and Technical Services, Administration and Support Services, Hospitality and Inbound Tourism, Personal and Household Services, Business Services, Financial Services and IT Software and Apps. All fertile ground for SMEs and smaller, more nimble corporations. A brave new world as they say, with plenty of opportunity for entrepreneurs. Copyright IBISWorld Pty Ltd 2015 IBISWorld makes no representation to any other person with regard to the completeness or accuracy of the data or information contained herein, and it accepts no responsibility and disclaims all liability (save for liability that cannot be lawfully disclaimed) for loss or damage whatsoever suffered or incurred by any other person resulting from the use of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Pty Ltd. In the event that the purchaser uses or quotes from the material in this publication in papers, reports, or opinions prepared for any other person it is agreed that it will be sourced to: IBISWorld Pty Ltd.