Statistics on Small Businesses in Australia: 2026 Update

Introduction

Small businesses employ over 5.1 million people in Australia; they are the backbone of the Australian economy in response to contributing immensely to economic growth. In this article, we will be going into all things related to small businesses: employment, industries, failure rates, and the aspects of business operations that drive growth and change. Small businesses. In this comprehensive exploration of small businesses in Australia, we aim to shed light on the intricate web of factors that shape their existence, growth, and challenges in an ever-evolving economic landscape.

Definition of Small Businesses

Most information on small businesses in Australia is provided by the Australia Bureau of Statistics (ABS). The Australian Bureau of Statistics (ABS) defines small businesses in Australia as businesses that employ less than 20 people. Small businesses include:

• Sole proprietors and partnerships (one or multiple owners without employees)
• Micro-businesses (1 to 4 employees)
• Any other business that has between 5 to 19 employees.

The Australian Taxation Office (ATO) uses the turnover of businesses as a guideline to define what a small business is, claiming a business with less than $2 million in aggregated turnover constitutes a small business. 

Small Businesses: The Backbone of the Australian Economy

How many small businesses are in Australia, and how many have employees?

Small businesses make up about 97% of all businesses in Australia, and most of them are one person. Of the 2,814,778 businesses trading at 30 June 2026, roughly 1.82 million had no employees at all. That is close to two in every three Australian businesses.

The gap between employing and non-employing is widening fast. Australia added 85,130 net businesses in FY26, and almost all of them were solo operators.

There is, however, positive growth on both sides. Employing businesses grew 0.2% in FY26, the first net increase since 2021-22. It happened despite 28,127 surviving businesses shedding their last employee and dropping back to non-employing during the year.

Employment size	Change in FY26
Non-employing	+4.8%
1 to 4 employees	+0.1%
5 to 19 employees	+0.3%
20 to 199 employees	+0.7%
200 or more employees	+0.8%

Every band grew, which has not happened for a few years. But non-employing businesses grew more than six times faster than any employing band.

It’s worth nothing that under business organisation rules a sole trader is treated as self-employed, so a freelancer with an ABN and no staff is a business in the ABS count, the same as a company with 40 people.

Crossing from solo to employer is where it gets messy

Those 2,025 net new employers crossed a line that trips up almost everyone. Hiring your first worker is the single most common reason a business owner books a consultation with a Lawpath lawyer, and the same handful of wrong assumptions come up nearly every time. If you are ready to bring someone on, get the classification right first, then paper it properly with an employment agreement or a contractor agreement, depending on which the relationship actually is. Not sure which? Start with the difference between a contractor and an employee.

Businesses: Industries and Profitability

As of 2024, the mining industry has the highest earnings of all sectors within Australia and generates significantly more earnings than any other industry followed by rental and real estate services and construction. Before starting a business, it is important to develop an industry analysis in order to prevent business failure.

The most profitable industry in Australia is the property and real estate sector, followed by ore mining. The basis for the real estate industry having the highest profit margin is in response to factors such as an increase of demand for houses and overseas migration

Small Businesses: Entry/Exit Rates

60% of businesses in Australia will fail within their first three years of operation, with 20% of businesses failing in their first year of operating. Whilst the exit rate of businesses in Australia is extremely high, developing an exit strategy for your business can assist in minimising financial detriments.

In FY26, 460,461 Australian businesses opened and 375,331 closed. That works out to an entry rate of 16.9% and an exit rate of 13.8%, measured against the 2.73 million businesses trading at the start of the year.

There were 2,814,778 actively trading businesses in Australia at 30 June 2026. That is a record, up 3.1% on the year, according to the ABS Counts of Australian Businesses released in August 2026.

According to the Australian Banking Association, the reasons for small business failure include:

• Insufficient leadership and management.
• Inadequate market research.
• Poor financial management.
• Underestimating competitors.
• Product and services issues.

Growth in Industires

In response to industrial expansion and rising middle-class incomes, there has been a constant and increasing demand for mineral and energy consumption which has led to mining businesses generating the highest average earnings of all businesses.

Geographic Location

Over the past year, small businesses have increased by 7%. As of 2024, most small businesses operate in New South Wales, Victoria, and Queensland.

The geographic location of businesses can be vital to success.

The capital city of states in Australia are usually triple the amount of those businesses operating in regional areas.

Conclusion

Overall, small businesses have an imperative role in the Australian economy. Making up the largest portion of businesses in Australia, small businesses have a vital role in employment, industry operations, and economic growth. There are various factors that determine the failure and/or success of a business with these enterprises operating in both metropolitan and geographical areas.