Number of businesses

IBISWorld expects the number of businesses to rise by 1.5% in 2024-25, to 2.02 million. Easing inflationary and cost of living pressures are anticipated to stimulate a recovery in business confidence, lifting the number of businesses. Expected rate cuts by the Reserve Bank of Australia (RBA) will also help support economic recovery, further driving the number of businesses as economic conditions and consumer sentiment improve. The number of business bankruptcies is anticipated to plunge in 2024-25 as it starts normalising after the surge experienced in the three years through 2023-24, pushing up the number of businesses in the Australian economy. However, many businesses across the economy are still expected to face challenging economic conditions on the back off the relatively high interest rates.This factor will continue weighing down on business numbers.

The pandemic, supply chain disruptions and inflationary pressures created volatile operating conditions for businesses over the past five years. Lockdown measures during the pandemic significantly disrupted the economy. Consumer sentiment and business confidence displayed significant volatility and economic activity stalled, which forced some businesses to close and discouraged new ones from entering. However, financial support programs implemented in response to the pandemic, such as the Federal Government's JobKeeper wage subsidy scheme, limited the number of business exits at the height of pandemic and contributed to growth in the number of businesses. Other economic factors, like low interest rates, also helped support businesses during the most challenging periods of 2019-20 and 2020-21. The easing of pandemic restrictions and economic recovery drove strong business numbers growth in 2021-22. As inflationary pressures started to build, rising interest rates and supply chain disruptions constrained business activity and growth in business numbers in the three years through 2023-24. Also, supply chain disruptions and rate hikes have wreaked havoc in the construction sector, propelling the number of business bankruptcies and exerting downward pressure on business numbers.

The number of businesses has grown over the long term as economic and population growth have increased available business opportunities. This relationship does not exist in the short term because numerous temporary effects can overwhelm the long-term factors. These temporary effects can include factors such as low interest rates and changes in business confidence and consumer sentiment, which all affect the number of businesses in any given year. Inflation is another long-term driver, which typically results in more businesses reaching the $50,000 turnover inclusion threshold.

A rise in market share concentration in industries generally reduces the number of businesses, as the economies of scale evident in larger businesses can make small businesses unviable. Whether parent companies operate as franchises or take full ownership of stores also influences the number of businesses, as each franchise is counted as an individual business. As a result, centralisation or decentralisation by major franchise chains can cause fluctuations in the number of businesses in Australia.

Volatility in the number of businesses is typically low. This is because the measure being used excludes businesses with a turnover of less than $50,000 and excludes businesses that do not report for GST. Growth in sectors like healthcare and ecommerce have driven expansion in business numbers over the past decade. Overall, IBISWorld expects the number of businesses to grow at a compound annual rate of 3.5% over the five years through 2024-25.