How much do small businesses really make?
As quoted in this SMH article: "For small businesses which filed as companies, 49 per cent registered a net income of between $0 and $25,000."
Is this manipulated for tax purposes or a true reflection of the profitability of small businesses in Australia?
Excellent question Narine. This is actually a fairly accurate reflection of the size and scale of most small businesses in Australia. Around 2 million of the total 2.2 million small businesses in Australia employ less than 19 people - 97%. 61 per cent of Australian businesses by number are sole traders with no employees. Small businesses are a critical yet sometimes underserviced sector in our economy.
When you consider that a huge percentage of new businesses fail within the first couple of years, with many failing in their first year, it is not surprising that the owners don't have a good income.
On top of that, most startups rely on external money being injected into the business. This money is typically from the owner. It doesn't make sense to pull an income from a business (and pay tax on it) when you are pooring your own money into it.
And then when times are tough, suppliers and employees still need to be paid. Not paying them is a quick path to being shut down. The only person who is desperate enough not to be paid is the business owner.
Tax minimisation for the owner is handy for a short while, but then catches up to you when they want a bank loan. A "successful" business owner will have a reasonable level of income.
Of course there are cash in hand businesses, and tax minimsation going on, but overall the article reflects that most small businesses struggle.
Anyone thinking of starting a business would do well to read the article and know the failure rate statistics for new businesses before they start.
Not sure exactly on the specifics of the data, but a good deal of company tax returns filed as nil tax returns are just shelf or dormant companies.