Why nobody wants to run a small business anymore
The local cafe, family-run hardware store and neighbourhood franchise are under growing pressure from rising costs and new regulations. If small businesses disappear, Australia could lose far more than jobs and economic growth.
Australians are an entrepreneurial bunch.
More than 2.7 million businesses are in operation around the country and of these a whopping 97%, that's 2.6 million enterprises, are small, classified as having fewer than 20 employees.
It makes small businesses the beating heart of our economy. They are found in every postcode and every sector, from farms and factories to cafes, clinics and consultancies.
They are especially prevalent in industries such as construction, professional services, real estate and transport.
But small businesses are now under growing pressure from regulatory changes, including recent capital gains tax (CGT) reforms and the introduction of Payday Super.
Why small businesses matter more than you think
More broadly, small businesses are highly active across franchising, a sector that covers about 73,000 small businesses.
According to the Franchise Council of Australia, these enterprises are, for the most part, made up of small family units. Yet they play a valuable role helping many young Australians find a pathway to their first job.
The upshot is that while big business may attract the limelight, it is small business that does a lot of the heavy lifting for Australia, contributing $590 billion to the economy annually, and employing about 5.4 million people, close to 42% of the private sector workforce.
In regional areas, small businesses tend to play an especially valuable role, often providing products, services and employment in areas where low populations make it less attractive for big businesses to set up shop.
But the contribution goes way beyond economics. These businesses typically provide considerable support for local communities, often sponsoring sporting teams, local schools and volunteering at community events.
Why small business owners are under pressure
Despite the upsides, the small business sector is facing serious challenges across a number of fronts.
Where have all the young business owners gone?
Take a closer look at who's running the small businesses in your area, and chances are you'll notice a common thread: few, if any, owners are in their 20s or 30s.
The Council of Small Business Organisations Australia (COSBOA) says more than two-thirds of small business owners in Australia are between 45 and 64 years of age.
Half are 55-plus, with many remaining active in their business well beyond traditional retirement age. Very few business owners are younger than 25.
This, of course, reflects the experience needed to start and sustain a business. And older workers are also more likely to be able to access the capital and credit needed to start or buy a business.
But that doesn't tell the full story.
Why young Australians are choosing secure jobs over starting a business
Research commissioned by Future of Work expert Dr Jo Winchester shows that cost-of-living pressures are seeing one in two young Australians choose career paths they believe are financially safer, such as pay-as-you-go jobs, over roles they feel genuinely passionate about.
Winchester says, "Young Australians are growing up in a world where stability feels harder to achieve than ever before, so it makes sense that many are approaching career decisions cautiously."
Winchester's findings match those of the Centre for Independent Studies (CIS). It found Millennials (Gen Y, aged 30-45) see high financial risks as the main barrier to starting a business and are more likely to prioritise job security, especially when faced with high student debts.
The upshot is dsecreased entrepreneurial activity.
Australia's start-up pipeline is drying up
Melinda Cilento, CEO of the Committee for Economic Development of Australia (CEDA), says more than one in 10 (13%) working-age Australians wants to work for themselves or start a business.
But that ambition is not translating into a pipeline of new businesses that can grow, hire and contribute to the economy.
CEDA research shows that the proportion of business owners as a share of the workforce has declined steadily over the past two decades, hitting a record low in 2025.
As Cilento points out, "New businesses are a launching pad for future innovation, competition and jobs. Their dynamism comes from their novelty, adaptability, risk appetite and energy.
"If we want a more productive, competitive and resilient economy, we need to make it easier for people to turn a good idea into a growing enterprise."
As we'll see, this is becoming harder, not easier.
Anne Nalder, founder and CEO of the Small Business Association of Australia (SBAA), says, "A modest decline in small business numbers may have limited macroeconomic effects. But a sustained and widespread decline would likely lead to weaker job creation, reduced competition, less innovation and growing economic disparities between regions and major cities."
Nalder cautions that "regional Australia would generally experience the most significant social and economic consequences because small businesses often form the backbone of local economies".
Beyond these issues, there is another factor making life harder for small business owners. And that's the sheer weight of costs, regulations, compliance measures and taxes that small operators face.
Starting a business is easy - staying afloat is not
The World Bank ranks Australia in seventh place globally for ease of starting a business (New Zealand comes in at number one).
That's no surprise. It costs nothing to sign up for an ABN (Australian Business Number), and it can be done online in a few minutes at the Australian Business Register portal.
That's where the easy bit often ends.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) says that running a small business has become harder than it needs to be, with many owners "worn down" by costs, complexity and unfair practices that they have no control over.
The workplace changes hitting small business hardest
Recent workplace changes may enhance the wellbeing of employees, but they often add to the burden for small businesses.
Can small businesses absorb another wage increase?
COSBOA chief executive Skye Cappuccio says many small businesses will need to make difficult decisions about how to absorb this increase in labour costs.
"Small business owners want to pay their people fairly, and they know their workers are feeling cost-of-living pressures," Cappuccio says.
"But this decision lands at a time when many small businesses are already under intense pressure from rising inputs, energy and fuel costs, rent, insurance, interest rates, increasing insurance premiums and ongoing regulatory change.
"For businesses operating on already thin margins, a 4.75% wage increase is not just a headline figure. It flows through overtime, penalty rates, allowances, payroll tax, superannuation and other employment costs."
Cappuccio believes many small businesses will look closely at prices, rosters, hours and hiring plans. Others will absorb the cost through owners working longer unpaid hours.
Why Payday Super is causing cashflow headaches
At the same time, small businesses are grappling with the introduction of Payday Super, introduced on July 1 this year.
It calls on employers to pay employee super contributions each payday, as opposed to quarterly. This is undoubtedly a plus for workers.
The problem is that unlike employees, who may be paid weekly, it can take weeks, even months, for businesses to collect revenue.
Accounting platform Xero found 87% of small businesses say paying super more frequently will put pressure on cashflow.
And the strain is personal. Almost one-third (31%) of small business owners expect to dip into personal savings to meet Payday Super obligations, while 31% anticipate needing to borrow money.
Close to two in five (38%) business owners plan to delay paying themselves to relieve the pressure on cashflow.
Why sole traders are putting off their own super
The irony is that while workers are benefiting from Payday Super, many self-employed Australians are scrimping on their own retirement nest egg.
Research by Hnry, an app and tax service designed to help sole traders, found two in five of the nation's 1.7 million sole traders plan to delay super contributions, nearly double the proportion who said the same in 2023.
Hnry Australia managing director Karan Anand says that Australia's superannuation system was built around traditional employment, leaving many sole traders to navigate retirement savings without the same support available to employees.
He explains, "For sole traders, there's no employer making compulsory payments in most circumstances, so super becomes another financial decision competing against rent, fuel, groceries and business costs."
As Anand notes, when cashflow is tight, super is often one of the first things self-employed workers put on the back burner.
A $7 coffee, a 14-cent profit
Each sector, industry and individual business will face its own costs, but as a quick guide, let's focus on hospitality and, in particular, cafes.
After all, at close to seven bucks for a large flat white, there's got to be money in running a cafe, right?
Not always.
According to cafe industry platform Clever Cafe, the current industry average net profit margin for an independent cafe in Australia is 2%-5%.
On a coffee priced at, say, $7, that would see a cafe earn a profit of 14 to 35 cents.
Clearly, you need to sell a lot of lattes to make big bucks.
This doesn't even consider the costs involved in opening a cafe, which payments platform Square says can be between $100,000 and $500,000, depending on size and location.
Square offers a breakdown of how much it costs to open (and run) a coffee shop in Australia, as shown in the table below.
This doesn't include the plethora of taxes that small businesses may face, ranging from income tax, goods and services tax (GST), payroll tax, fringe benefits tax, excise on imported goods, and potentially capital gains tax if the business is sold.
What replaces a small business when it closes?
Andrew Griffiths, business strategist and author of Someone Has to Be the Most Expensive: Why Not Make It You?, says, "When a small business disappears, it tends to be replaced by one of four things: a national chain, a franchise, an online alternative or an empty, abandoned-looking space."
None of these options is optimal for consumers or local economies.
Griffiths adds, "The wonderful local restaurant, owned and operated by people who know their customers, is replaced by another franchise selling exactly the same food in exactly the same way as hundreds of other outlets.
"The family-run hardware store or garden centre, built on decades of knowledge and personal service, loses out to a national operator. Or the shopfront simply stays empty because the cost, complexity and risk of starting a small business feels too risky for most."
As Griffiths points out, all consumers appreciate convenience, consistency and lower prices. But unless we support local businesses, we could end up with generic high streets, fewer genuinely distinctive businesses, and less choice.
"It doesn't matter whether we are shopping in Hobart, Cairns, Sydney or Melbourne," says Griffiths. "We increasingly encounter the same brands, the same products and the same carefully scripted customer experience."
Moreover, when a business closes, suppliers further afield feel the pinch, creating a ripple effect across other communities.
Conversely, when we buy from a major corporation or an international online platform, much of our money can leave the community, and often the country.
As it is, some of Australia's favourite retailers are quite open about being foreign owned, including IKEA (Sweden), Apple (US), Aldi (Germany) and Uniqlo (Japan).
But there are other popular brands whose foreign ownership may be less obvious:
- Costco, US owned
- Sephora, owned by French luxury group LVMH
- Bonds, owned by Canadian apparel business Gildan Activewear
- Zara, owned by Spanish retail giant Inditex
- H&M, Swedish owned
- T2, owned by Luxembourg-based CVC Capital Partners
These, and other, multinationals have scale and buying power that eclipses small, local businesses, which, of course, means they have the potential to reward shoppers with lower prices.
But as Andrew Griffiths points out, if price and convenience become our only considerations, we shouldn't be surprised when local choice eventually disappears.
"We cannot say we want vibrant high streets, thriving communities and more Australian-owned businesses, then automatically buy everything from the cheapest national or international operator," warns Griffiths.
"In a world that is becoming increasingly homogenised, when a small business disappears, we lose far more than we realise."
The hidden compliance burden facing operators
"Depending on the venue, operators may need to manage food safety compliance, liquor licensing requirements, workplace health and safety obligations, payroll compliance, responsible service of alcohol training and a range of local council requirements," says Nathan Merriman, general manager of GoTab Australia, a point-of-sale (POS) platform tailored for the hospitality industry.
He notes, "Each requirement may seem manageable on its own. But collectively they create a significant administrative workload, particularly for independent operators and small business owners who are often wearing multiple hats."
Across the hospitality sector, Merriman says the five biggest costs business operators grapple with are labour, rent, food and beverage inputs, utilities and technology.
"Most operators can't simply cut their way to profitability. The focus tends to be on improving efficiency, reducing complexity and getting more value from every dollar they spend.
"The past few years have been characterised by rising costs across almost every part of the business. Labour, ingredients, utilities and insurance have all increased at different points, creating significant pressure on margins."
As he points out, consumers are feeling cost-of-living pressures too, making it harder for hospitality venues to pass rising costs onto their customers through higher prices.
How tax changes could add to the strain
Federal Budget proposals to scrap the 50% CGT discount for small business and replace it with indexation tax at a minimum rate of 30% were abandoned, but COSBOA's Skye Cappuccio remains concerned that broader CGT changes could impact investment, entrepreneurship and productivity.
"Australia needs a tax system that gives business owners confidence to invest, employ local people and continue contributing to the communities they serve."
Cappuccio also believes one of the Budget's key tax reforms, taxing discretionary trust distributions at a new minimum rate of 30%, rather than beneficiaries paying tax at their marginal rate, has been "largely overlooked".
She explains, "There has been very little attention on the 350,000 to 400,000 small businesses operating through trust structures, many of whom now expect a significant hike in their tax bill and a direct impact on their business and their livelihood.
"These are small businesses using trusts for legitimate commercial reasons. Most have annual turnover below $2 million and include trades, retailers, hospitality venues, professional services firms and family-run enterprises in communities right across Australia.
"The proposed changes risk putting additional pressure on small businesses at a time when many are already facing rising costs, workforce challenges and difficult trading conditions," Cappuccio says.
Why Australians still dream of being their own boss
A survey by the Council of Small Businesses of Australia (COSBOA) identified four main drivers that motivate Australians to start a business of their own:
- Flexibility and work-life balance: Having more control over their time, and being able to choose when and how they work.
- Financial opportunity: Many current business owners saw self-employment as a way to improve their income, gain financial security, or build something more profitable than working for someone else.
- Independence and autonomy: A strong desire to be their own boss and make their own decisions was a major motivator.
- Passion and personal fulfilment: Some owners were driven by a passion for their craft or industry, or a desire to do meaningful work they cared about.
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