Editor’s note: This story first appeared on Lawyers Weekly’s sister brand, Accountants Daily.

The recently released SME Performance Indicator by MYOB has indicated that the small business sector is declining in terms of economic performance.

The tool, released by the company today (12 July) at the Australian Conference of Economists, was designed to provide insights into the economic health of the nation and has shown SMEs to have a +5/-5 deviation from the gross domestic product (GDP).

The indicator calculated the gross value added (GVA) for businesses that have up to 19 employees, aggregated for the entirety of the small-business sector in Australia.

The deviation of GVA from real GDP provided an SME performance score for small businesses in comparison to the health of the Australian economy.

MYOB chief executive Paul Robson said the indicators result highlighted how small businesses have continued to be challenged in the current economy.

“The SME performance indicator tells us how the small-business sector is performing compared to the Australian economy and the industries most impacted give us insight into why this might be down compared to GDP,” he said.

The lead indicator of the SME economic performance was based on over 17 million observations of 200,000 small businesses in Australia. The data highlighted that construction and retail SMEs suffered the most.

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The indicator showed that the Australian SME sector flattened after a steep economic decline at the end of 2023.

For six months, construction was down by about 6 per cent, while retail GVA was down 7 per cent for two years. Cost-of-living pressures caused the retail sector to see limited growth since 2021.

Robson said that due to evident pressures on the financial market, it was expected that small businesses would be impacted the most.

“Small businesses are more sensitive to the business cycle and quicker to respond to changing economic circumstances than other business types,” Robson said.

MYOB is able to provide Australian economists with powerful and valuable insight into the current economy through the development of the SME Performance Indicator.

Robson said the indicator will become a crucial and heavily relied upon tool due to the Australian business sector being saturated by SMEs.

“Ninety-seven per cent of Australia’s businesses are small businesses. These 2.5 million firms employ 42 per cent of workers – the largest share of any business type – and represent nearly a third of total economic activity in Australia,” he said.

The indicator will also keep track of the type of challenges businesses will face and ensure the right amount of support is provided. Impact Economics and Policy lead economist Angela Jackson said the tool will offer direct insight into the health of Australian small businesses as well as broader economic trends.

“The indicator provides an authoritative new resource for decision-makers in the private sector and government, leveraging data to provide valuable insights on the performance of the small-business sector and its role in the economy,” she said.

SME MYOB general manager Emma Fawcett told Accountants Daily the data highlighted by the performance indicator demonstrates how significantly the small-business sector has been impacted by inflation and interest rate rises.

“Small businesses are more sensitive to the business cycle and quicker to respond to changing economic circumstances than other business types,” she said.

“July is a great time for businesses to sit down with their accountant to plan the financial year ahead, which we encourage all SMEs to do. Over the next 12 months, small businesses will be keeping a close eye on inflation and what the RBA does with interest rate rises.”

Fawcett said MYOB will continue to focus on updating the SME platform for the remainder of 2024 to make it easier for businesses to streamline key business workflows and reach their full potential.

“MYOB uses data like the SME performance indicator to inform decisions around the products and services that will best serve our business community.

“The softening in the economy is likely to continue for a while yet, so we’ll be focused on solutions to help businesses through this period,” she said.