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Are You Really a Small Business or not, and Why it Matters

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Are You Really a Small Business or not, and Why it Matters

I recently presented to an audience of procurement professionals from large organisations on the topic of creating better relationships between Small and Large Business.

I was the sole ‘Small Business’ person at the conference, so I had a chance to advocate on behalf of all my Small to Medium Business colleagues.

What actually is a Small Business?

Over lunch on the first day of the conference, one of the attendees asked me a very valid question:

“What actually is a Small Business?”

I replied that I had been planning a blog post on exactly this topic for a while, so it seems that its time has come – prompted by my lunch companion at the conference.

The answer is anything but simple! We use the terms ‘Small Business’ and ‘SME’ rather loosely; perhaps with good reason. If we think of a continuum with my environmental consultancy at one end, and Rio Tinto (one of our clients) at the other end, there’s not much argument to be had.

My company is clearly a Small Business, and Rio Tinto is obviously a large business. (For those who don’t know, Rio Tinto is a major, multinational resources company with revenue of $40 billion.)

Between those two extremes, there is room for a lot of interpretation.

Bronwyn Reid

And everyone has a different interpretation.

Here are just a few examples:

  • Australian Taxation Office (ATO) – Annual revenue of less than $2m (excluding GST).
  • Australian Government – Who knows? Different legislation uses different benchmarks, so it could be $2m, $10m, $25m or $50m or any other number that they think will be electorally palatable.
  • Australian Securities and Exchange Commission (ASIC) – Two out of three of; Annual Revenue of less than $25m, fewer than 50 employees and Gross Assets of less than $12.5m.
  • Fair Work Australia – Fewer than 15 employees.
  • Australian Bureau of Statistics – Fewer than 20 employees.
  • Queensland State Government – Fewer than 200 employees.
  • BHP Local Buying Program – Fewer than 20 full-time employees, excluding casuals, contractors and apprentices.
  • Australian Competition and Consumer Commission (ACCC) – Fewer than 20 employees, including casuals.

The definitions get even more diverse when we look overseas:

  • In the USA, the Small Business Administration considers any business with fewer than 500 employees to be ‘small’.
  • In the UK, the term SME is more commonly used for any business with fewer than 250 employees.

Why does the definition matter?

So, a Small Business is one with somewhere between 20 and 500 employees, with a turnover of anything up to $50m. It’s no wonder that Small Business owners get confused!

But it is important for all of us to know what definition we fit with each agency because it can make a huge difference to our business success.

Here are just a few issues that may impact upon your company, depending upon whether you are classified as a Small Business or not:

  • Tax rates – With tax cuts in the wind, your business may be a winner, or miss out and have to continue paying a higher tax rate.
  • Winning contracts – Some government contracts have preferential treatment for Small/local Businesses. Qualifying means that you are eligible to put your hand up for the work and, more importantly, your big competitor can’t. Local Buying Programs such as the BHP Local Buying Foundation are often limited to Small Business.
  • Payment terms – Many Governments and large customers give more favourable payment terms for Small Business. The global giant Rio Tinto that I mentioned earlier will pay Small Businesses in 30 days instead of their normal 45 days. The NSW State Government has committed to 5-day payment terms for small business by the end of 2019.
  • Legal protection – Australia has legislation that protects Small Businesses from unfair conditions in contracts offered by big organisations.

And on the down-side:

  • Business loans – Most banks make borrowing money harder for Small Businesses.

Find where you fit.

With some worthwhile benefits on offer, it is well worth your time investigating whether your Small Business status can be turned to your advantage. A good place to start is your local Council. They will often have an incentive program for local Small Businesses that can give you a real hand-up when you compete for work.

You might get a pleasant surprise.

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