Importance Of Small-Medium Enterprises In Australia

Business Studies вЂ" Extended Response Question

Executive Summary

This business report was created in order to outline the characteristics of small businesses, and also to explain the importance of these small businesses to the Australian economy. This report aims to achieve its purpose through the use of several Australian small businesses as examples. The businesses examined are: “Laservision Australia”, “Luken and May”, and “Peter Alexander”.

Characteristics of Small Businesses

Although there is no universally accepted definition of a small business, small businesses are generally identified through reference to quantitative measurements, and qualitative descriptions.

Quantitative

A quantitative measurement is one which exists in a range of magnitudes вЂ" it can therefore be measured. Examples of quantitative measurements used to describe the characteristics of small businesses include:

- The number of staff a business employs. The most common measurement used to determine the size of a business falls under the quantitative measurement of: the number of employees a business utilizes. A business is considered small if it is a manufacturing enterprise with fewer than 100 employees, while non-manufacturing enterprises are considered small if they have fewer than 20 employees. Luken and May, for example, is classified as small due to the fact that, as a non-manufacturing business, it has fewer than 20 employees.

- The estimated number of businesses operating (in Australia, this figure rose to over 1.3 million small businesses in January 2005)

- Approximate share of Australian businesses compared to medium sized and large businesses. Approximately 95% of all Australian businesses are classified as small, with the other 5% being either medium or large businesses.

Qualitative

A qualitative description is used in order to describe certain types of information. Qualitative data is described in terms of quality. Examples of qualitative descriptions used to describe the characteristics of small businesses include:

- Type of ownership. A business is generally classified as small if it is independently owned and operated the owner makes most of the decisions, and the owner provides the bulk of the capital. Peter Alexander, for example, is independently owned, which categorizes the business as small.

- Management, organisational structure. Small businesses often have a simple organisational structure with the owner undertaking most management functions.

- Market share. This refers to the amount of people the business reaches. Small businesses are often local businesses which are not dominant in the industry.

Importance of Small Businesses to the Australian Economy

Small businesses such as Luken and May, Laservision Australia, and Peter Alexander are important to the Australian economy for a number of reasons. These reasons are classified under two categories вЂ" the economic roles of business, and the social roles of business.

Economic roles of small businesses

The economic roles of business are concerned with the financial impact that the activities of businesses have on various groups in the business environment. These economic roles are one part of the reason behind why small businesses are so important to the Australian economy. Examples of the economic roles of small businesses include:

- Contribution to GDP

- Source of Government Revenue

- Employment

Contribution to GDP

One reason why small businesses are so important to the Australian economy economically, is that they contribute greatly to the growth of Gross Domestic Product (GDP). This means that they contribute to the value of the total production of goods and services produced annually in Australia. The Australian Bureau of Statistics estimates that small businesses contribute approximately 40% ($240 billion) of Australia’s GDP. This is important, as a high GDP combats unemployment and often increases wages of employees, as businesses demand labour to meet the growing market. A small business such as Laservision Australia is important in contributing to the growth of GDP, as they provide a service to the special events industry in many countries around the world. This not only adds to the GDP, but brings money into Australia from abroad.

Source of Government Revenue

Another reason why small businesses are so important to the Australian economy is because the government receives a lot of their tax from small businesses. Although everyone pays tax which allows the government to keep the country running smoothly, a large amount of tax comes from small businesses, as there are between 1 and 1.4 million SME’s (small business enterprises) currently operating in Australia. Although the tax contributions of individual small businesses such as Peter Alexander do not affect the government in a large way, it is the combination of the tax payments of all SME’s that help to keep the country running smoothly, and help keep the country out of debt.

Employment

The small business