Unless someone like you cares a whole awful lot, nothing is going to get better. It’s not.
The Lorax by Dr. Seuss
Small businesses are important to all of us
Collectively, small businesses are Australia’s biggest employer and, in 2018-19, contributed to 32% of Australia’s total gross domestic product (GDP).
Small business owners are people.
Owning a small business does not necessarily translate to increased financial security or safeguard owners from financial dangers and distress. Rather, small business owners can face tougher hurdles because they do not have the same protections as individual consumers. Others may be vulnerable before starting their businesses, and this vulnerability can continue – and compound – throughout their business’ lifetime.
So, for many small business owners, engaging with a financial counsellor can be as important, worthwhile, and potentially life changing as it can be for individual clients.
Small business owners may have been impacted by:
- Disasters where they’ve needed to prioritise home, family, and food;
- Physical and/or mental health issues affecting their ability to work and generate an income;
- Family abuse or violence, including manipulation or coercion in business-related arrangements;
- Increased casualisation in the surging ‘on-demand’ economy, causing unpredictable and erratic income;
- Difficulty with big business power asymmetry, including technical complexity in contracts and supply agreements.
It often takes time and significant stress – and no small degree of bravery – before a small business owner reaches out. When they do reach out, financial counsellors have the listening skills to really hear their stories, and the knowledge to open up pathways to resolution.
Which small business owners may be vulnerable to financial stress?
Some small business owners come from a position of existing financial precarity. Often, they start a business to try to make a living out of a skill or hobby or to ‘buy themselves a job’ when they can’t find one.
This may be due to demographic factors such as age, ethnicity, or gender. For example, in 2012 the RBA found that the percentage of small business owners aged 55 and over had almost doubled in the previous 25 years, from 17% to 30%.
While younger workers have been disproportionately affected by the COVID-19 pandemic, mature age workers have a higher risk of remaining unemployed. This can have a greater financial impact upon many women whose participation in the workforce is reduced while they take on caring roles.
Trend data also indicates an element of ‘buying a job’ in the older-age cohort. This is not always a negative – mature age start-ups can be more successful – but for some it is daunting, particularly given complex contracts, and administrative and tax compliance requirements.
It is further estimated that about one-third of immigrants set up small businesses to generate an income. Navigating the complexity of contracts, and financial and tax structures is challenging even if English is a person’s first language. For others where it isn’t, the challenges can be magnified.
Gig economy risk
We also see growing risks in the ‘gig’ or ‘on-demand’ world.
As the ‘Internet of Things’ (IoT) expands, connecting billions of people to the web, digital platforms that ‘match’ people to work on an ‘on-demand’ basis are proliferating.
Generally, these arrangements are unregulated and contract-based. The contractor is considered self-employed – not an employee. This can be positive, but there is a downside. In a 2020 paper, published by the Actuaries Institute, it was noted that:
- Workers in Australia’s gig economy could face long term financial disadvantage due to their lack of access to:
- employer funded superannuation;
- basic entitlements: paid annual, sick and parental leave, workers’ compensation;
- a minimum wage.
- The gig worker profile over-represents more vulnerable segments of the workforce – young workers, students, migrants, and the formerly unemployed.
Given these vulnerabilities, it may not come as a surprise to learn that small business owners’ net incomes are frequently less than the typical wage earner at about $24,000 on average (as at 2018).
Added pressures and higher risk
To access finance to build their business or manage cyclic cash flow, small business owners may put their own assets, such as their car or home, at risk.
Financiers frequently require personal guarantees or security interests over personal property before advancing credit. Anecdotal evidence indicates that, when things have gone wrong, small business owners can be dismayed to discover their contracts contain terms allowing the creditor/supplier to place caveats or liens over their property.
As financial pressure builds, some agree to loans similar to pay day loans. No specific checks are required, and unscrupulous lenders often target small business owners because they don’t need a credit license and don’t have to be a member of AFCA. The results are not dissimilar to individual consumers presenting with SACC debts, including exorbitant fees, sometimes daily repayment requirements, and stressful collection activity.
Small businesses are denied many of the protections available to ‘retail consumers’ in their business transactions: consumer credit laws usually don’t apply, and free or subsidised community legal or accounting assistance is limited. Consequently, many are caught out by regulation or contract issues that manifest in times of disaster or financial distress.
Financial counsellors are important to small business owners
As with individual clients, financial counsellors work to clarify a small business owner’s financial situation, develop options, and consider negotiation tactics. We may advocate for them while they arrive at decisions, build skills, and/or improve their resilience. Sometimes, the most viable option is to talk through a respectful exit. In doing this, we explore what life could look like after business closure – rebuilding, relocating, diversifying, re-educating, retiring.
Small business owners are people. Sometimes they have never before sought help. Non-judgmental financial counsellors are well placed to forge a positive difference in their lives because we have the skills and abilities to collaborate with people in navigating a pathway forward.
We rise by lifting others.
 RBA, ‘Small Business: An Economic Overview’, May 2012, p5.
 Before COVID-19, the fastest growing cohort of JobSeeker recipients was women over 55. In 2019, about half the JobSeeker recipients were 45 years or older. Source: ABS data, ‘Labour Force, Australia’, October 2020.
 Green Paper, ‘The Rise of The Gig Economy and its Impact on the Australian Workforce‘, Dec 2020
 ASBFEO, ‘Small Business Counts‘, December 2020.