Xero Australia’s Trent Innes says governments are failing to properly support SMEs, but do you agree with his recommendations on how SMEs could be better served?
If one thing has become clear from the 2016 federal election campaign, it’s that small business is a key battleground for all sides of politics. But how do governments actually define what constitutes a ‘small business’?
There has been growing discussion around how governments can help small businesses grow and thrive. The sound bites hitting our television screens tell us it’s about ‘jobs and growth’, again and again.
There’s just one small problem: we can’t seem to agree on what a small business actually is. We have the image of the café on the corner, the tradie down the road and the parts manufacturer in their garage.
But when it comes to actually discussing policy — the most important aspect, after all — there’s little agreement over how to define who gets the benefits.
The 2016 federal budget saw arguments over cut-offs — while one side wanted to include all businesses under $10 million turnover (some 870,000 businesses), another wanted to reduce that threshold to $2 million (removing tax cuts and other benefits from some 60,000 businesses).
How can we make good business policy, if we can’t even agree on who we’re giving it to?
What it is clear, though, is that the promised 2.5 per cent tax cut for small businesses isn’t a major boost to productivity. In fact, based on the information to hand, we estimate that the average business (counting both profitable and unprofitable businesses) would get approximately $490 back in its pocket at tax time.
Modelling from the Council of Small Business Australia (COSBOA) similarly found that of the 870,000 businesses eligible for a tax cut, just 40,000 would actually be able to use the resulting profits to grow their business.
That’s not to say that tax cuts aren’t worthwhile — every bit helps. However, while we applaud the focus on small business in recent years, perhaps there’s more we can do to support this segment of the Australian economy.
Based on our daily interactions with small businesses, we’ve put together some thoughts on policies that could be of real benefit:
Reduce friction between government and small business
Despite the allure and easy sound bites that accompany tax cuts, a small business must ultimately make a profit (and a decent one at that) in order to benefit from this sort of incentive. And as shown above, the proposed tax cut is unlikely to yield the ‘jobs and growth’ that are so often talked about.
Meanwhile, Australia continues to have a highly rigorous but complex and often burdensome tax system, which requires businesses and their advisers to spend hours ensuring they comply with all the rules.
Instead of promising tax cuts, businesses would be better off if the government made compliance easier. This could be done through lighter regulation, or implementing technology that removes paperwork and moves government systems online.
While some of this is being done by government departments already, a true commitment to modernising government collaboration with small business will surpass a meagre tax cut any day.
Encourage technology investment for small business
Another major incentive focused on in the budget was the immediate asset deduction, allowing businesses to purchase coffee machines, cars and other hardware. But, like the tax cut, the incentive is only useful if the business has the cash in the first place — for those who don’t have $20,000 spare to spend on hardware, it isn’t so useful.
These sorts of incentives are also focused on a traditional approach to business. Start-ups and many technology-enabled small businesses are less likely to need a forklift or coffee machine (though a ping-pong table may qualify) — instead, much of their capital is spent on the software underpinning their businesses. This is where it would be highly beneficial to see policies that recognise the nature of all modern businesses, rather than just those that require hardware.
Help businesses sustain momentum and growth
Jobs and growth are all well and good when a small business is thriving. But with fewer than half of all businesses with less than $2 million turnover making it through their first five years, those owners would rather hear ‘survive and thrive’.
Not all businesses survive, but when that it is a matter of being squeezed out of your industry by unfair market forces, or matters outside your control, there is potential room for the government to intervene.
With that in mind, making policies that help businesses survive their formative years, and giving them the ability to get on their feet, would go miles to ensuring the small businesses that make up such a large part of our economy continue to sustain momentum.
Invest in education
There has already been a lot of discussion around the need for education in science, technology and engineering, but it bears repeating — we need to prepare Australia for the next stage of our economy.
With the waning mining boom, we want to ensure our next generation is digitally capable and skilled, and it’s something that we need to see more focus on.
These skills will be vital in all facets of our economy, from multinationals transitioning to digital services, to high-growth start-ups that could become our future global successes.
We’ve already proven we are an innovative nation with successes like Atlassian and Campaign Monitor, but ensuring we have the future skills pool to continue this innovation will be the difference between a booming nation and a floundering one.
Educate small businesses in financial literacy
Education isn’t just about schools. One of the major issues accountants and bookkeepers see on a daily basis is SME owners not having a good grasp of their financial standing.
As a result, they can’t make the sound decisions necessary to put their businesses in the strongest position.
An education framework that provides small business owners with the knowledge they need to increase their financial literacy would help businesses improve their survival rates and increase their share of Australia’s GDP.
And by incentivising them to take these lessons on board, the government can ensure that taxes are better handled and the economy is stronger as a whole.
Trent Innes is the managing director at Xero Australia, the Australian subsidiary of a New Zealand-based company that provides cloud-based accounting software.