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Apr 2016

Where The Money Goes: Mapping Out Australia’s Most Popular Sectors for Small Businesses

April 18, 2016
Capify Australia

Australia, for many, is all about culture and liveable cities and, well, interesting wildlife. But for many local and foreign investors, it is where they can realise their dreams of starting their own businesses.

As a testament to that, in the past few years, there has been a steady increase in the number of small businesses in Australia.

 

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The Economy Factor

If we take a look at this phenomenon on a macro scale, Australia’s appeal for business is not shocking. In Forbes’s 2015 list of the best countries to do business in, Australia sits comfortably in 14th place, with its neighbour New Zealand taking the second spot. Other areas in the Asia Pacific such as Singapore and Hong Kong are in the top 15 as well.

We have the country’s stable economic condition to thank for this. Although Australia’s GDP went down 3%, the fact that there is monetary freedom and minimal corruption compensates for that. Red tape is not a problem, either. The taxes, investor protection measures, and stock market performance also contribute to the country’s position.

Now, while this is easy enough to understand, the question is where do budding entrepreneurs invest their capital? What business sectors have been hot in the past four years or so? The answer lies in the data from the Australian Bureau of Statistics.

 

The Hottest Sectors

The thing with small business trends in Australia is that they are pretty stable  as shown in the distribution of new businesses from 2011 to 2014. There are four sectors that consistently come out as top choices  for new business investors.

In terms of entries into the market, the construction sector ranks top across the board. The professional, scientific, and technical services sectors are consistent second placers, whilst the rental, hiring and real estate services and financial and insurance services industries rank third and fourth, respectively.

In 2014, there were nearly 54,000 new businesses in the construction sector alone. Collectively, the three sectors saw over 87,000 new companies. The numbers may have fluctuated year in, year out, but the overall trend on figures is pretty much the same.

 

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Avoiding Statistical Misinterpretation

Interpreting these figures alone, however, could lead to misinterpretations. Just because these sectors see the most number of entries every year does not necessarily mean they are automatically the best to venture to go into. This is because we have to factor in the exit rate in the said industries as well.

Although construction is pretty popular among small business owners, it also has a pretty high exit rate. According to the data, the sector has seen a 14 %-16% exit rate within a four-year period. In fact, in years 2011 and 2012, there were more construction businesses that exited the market than new entries.

Fortunately, the other three sectors are  more stable. The professional, scientific, and technical services sector’s exit rate hovers around 13 to 14.5%.

The other two have much lower figures than that. The financial and insurance services business saw a sub-12% exit rate in years 2011 to 2012, but it improved to less than 10% in the  following two years. As for the rental, hiring, and real estate services, the exit rate has been below 10% as well.

 

Growing Numbers, Growing Competition

Looking at the bigger picture, it is a good thing that there are more businesses in the country. But for the people who run these SMEs, this signals tougher competition every year. The more crowded the market, the more challenging it is to increase a business’s overall market share.

This is one of the main reasons many of the SMEs fail in their first few years and perhaps the reason behind the high exit rates in some of the industries. Failure to cope always means a big hit on the business as a whole. A fiercer market is no problem to those who plan. And it is always possible to bounce back, even if you are trying to breathe new life into a struggling enterprise.

 

A Matter of Strategy

For this reason, it is important to come up with a good strategy to outdo the competition. There should be a concrete plan in every business to ensure that the enterprise stays on top.

The first part of any strategy should centre around stabilising the cash flow. For small businesses especially, this is a very typical problem. Boost your capital through investments and even loans. A small business loan could do a lot to improve your finances and give you the boost you need to take the business forward.

Once that is out of the way, the priority should be retaining the clientele and ensuring consistency in providing great products and/or services.

Focusing on marketing would not hurt either, but allocate a reasonable budget for it. Identify what the competitors are doing right and come up with a game plan to gain better results. Maximise every distribution channel there is,  so your target market remembers your brand.

It also helps to keep an eye out on potential expansions to gain more footing on the market. Sure, the expansion may cost quite a hefty sum, but if you manage to gain more customers, it is well worth it. A larger market share could easily compensate for the cost of the expansion.

www.capify.com.au can help with business financing, most notably through our small business loans.

We provide alternative lending solutions to small and medium enterprises that need a little fiscal boost to grow. We are among the industry leaders in Fintech and business lending. We cater to enterprises that need help with their finances.

Regardless of the industry, business owners will always face some challenges. But what matters is how well you cope and strategise to ensure the enterprise’s growth never stops.

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