TECHNICAL NOTE MEASURES OF BUSINESS GROWTH


INTRODUCTION

1 In CABEE, the stock of businesses is updated each year according to a standard equation:

2 Operating at start of financial year + Entries – Exits = Operating at end of financial year

3 In previous releases of CABEE, all data was presented in accordance with this equation at both a national level, and for selected classifications: Industry; Main State; Institutional Sector; Type of Legal Organisation; Employment Size; and Annual Turnover Size.

4 To ensure additivity, the classification values (e.g. industry code, main State, employment size range, etc.) attributed to each business were held constant over the lifetime of the business in previous editions. Specifically, for each business, the latest available data were used to overwrite any periods of conflicting or missing data.

5 The main issue with this approach is that it is possible for businesses to change their characteristics over time, particularly for employment size and annual turnover size. In fact, this change can be of interest in itself as business growth can be considered in terms of whether a business is increasing with respect to that characteristic, remaining stable, or decreasing in size over time. To address this, recent releases of CABEE have extended the standard equation for employment size and annual turnover size to:

• Operating at start of financial year + Entries – Exits + Inflow – Outflow = Operating at end of financial year, where:
  • Inflow = the number of surviving businesses that have changed their classification to the classification of interest; and
  • Outflow = the number of surviving businesses that have changed their classification from the classification of interest.

EXAMPLE

6 Consider the following example involving a small business which is active during the 2008–09 and 2009–10 financial years. During this two year period, the business:

• Did not employ any staff at the start of 2008–09 financial year;
• Took on 2 employees during 2008–09; and
• Grew to 6 employees over 2009–10.

7 Under previous publications (where classifications were held constant for each business at their latest available value), this business would have been included in the '5–19' employees category for June 2008, June 2009 and June 2010. This can result in some misunderstanding regarding the size of the businesses in earlier time periods.

8 Now, under the new approach, the business would be classified according to its size for the respective year:

	Operating at start of financial year	Plus Entries	Minus Exits	Plus Inflows	Minus Outflows	Operating at end of financial year
2008–09
Non–employing business	1	0	0	0	1	0
1–4 employees	0	0	0	1	0	1
5–19 employees	0	0	0	0	0	0
2009–10
Non–employing business	0	0	0	0	0	0
1–4 employees	1	0	0	0	1	0
5–19 employees	0	0	0	1	0	1

9 Using this approach, it is possible to present the change in business numbers (of surviving businesses) for different classifications (of employment size and annual turnover). For example, consider the following partial extract from the publication's Growth of Business Survivals by Employment Size Range table below.

CHANGE IN BUSINESS SIZE OVER TIME FOR SURVIVING BUSINESSES(a): June 2010–June 2012
			CHANGED BUSINESS SIZE CATEGORY (EMPLOYMENT SIZE RANGES)					Inflow at end of financial year	Outflow at end of financial year	Net movement of surviving businesses(c)
			Non–employing	1–4(b)	5–19	20–199	200+
			no.	no.	no.	no.	no.	no.	no.	no.
CHANGED BUSINESS SIZE CATEGORY AT JUNE 2011
BUSINESS SIZE CATEGORY AT JUNE 2010
	(Employment Size Ranges)
		Non–employing	1 042 971	37 125	2 841	497	32	64 283	40 495	23 788
		Employing
		1–4(b)	53 143	366 737	35 744	2 126	219	65 523	91 232	–25 709
		5–19	8 401	26 654	167 346	11 668	52	47 459	46 775	684
		20–199	2 603	1 603	8 844	63 359	644	14 843	13 694	1 149
		200+	136	141	30	552	4 734	947	859	88
		Total	1 107 254	432 260	214 805	78 202	5 681	193 055	193 055	–
CHANGED BUSINESS SIZE CATEGORY AT JUNE 2012
BUSINESS SIZE CATEGORY AT JUNE 2011
	(Employment Size Ranges)
		Non–employing	1 052 102	38 285	2 951	518	47	62 087	41 801	20 286
		Employing
		1–4(b)	51 209	370 429	36 436	2 287	138	67 388	89 975	–22 587
		5–19	8 336	26 823	168 646	12 525	55	47 535	47 684	–149
		20–199	2 528	2 011	8 061	63 846	791	15 751	13 391	2 360
		200+	141	166	61	493	4 874	1 031	941	90
		Total	1 114 316	437 714	216 155	79 669	5 905	193 792	193 792	–
– nil or rounded to zero (including null cells)
(a) Please refer to paragraphs 53–57 in the Explanatory Notes for more information regarding employment size ranges.
(b) A small number of businesses which have ITW roles for purposes other than withholding amounts from wages and salaries (and as such have zero employment), are included in this category.
(c) Please refer to the Technical Note and Glossary for more information regarding the net movement of surviving businesses.

EXPLANATION OF CONTENTS

Business Size Range Matrix

10 The primary purpose of the table is to quantify the businesses which grow or contract between financial years. The first five columns provide a cross–classified matrix which shows how many businesses were classified to one business size at the start of the financial year, and a different business size at the end of the financial year.

11 Note that the majority of businesses do not change their size category between years, and the counts of these businesses are represented along the main diagonal of the table. For example, 1,052,102 'Non–employing' businesses at the end of June 2011, remained 'Non–employing' at the end of June 2012. Equally, 4,874 businesses in the largest size category at the end of June 2011, remained in the largest size category at the end of June 2012. In the above table, it can be seen that:

• 51,209 businesses had '1–4' employees at the start of the financial year and contracted to be 'Non–employing' by the end of the financial year (negative growth);
• 370,429 businesses had '1–4' employees at the start of the financial year and continued to have '1–4' employees at the end of the financial year (stability); and
• 36,436 businesses had '1–4' employees at the start of the financial year and expanded to have '5–19' employees at the end of the financial year (growth).

Inflow at End of Financial Year

12 The total number of business that moved into a size range from another range. Note that these businesses may have come from larger or smaller size range (depending on the range being analysed).


Outflow at End of Financial Year

13 This column accounts for the total number of business that moved out of a size range into another range. Note that these businesses may have come from larger or smaller size ranges (depending on the range being analysed).


Net Movement of Surviving Businesses

14 The net movement of surviving businesses for each range, i.e. accounting for all businesses that moved into (inflow) and out of (outflow) a particular size range.

15 The net movement of surviving businesses is calculated by taking total inflow at the end of the financial year minus total outflow at the end of the financial year.

16 The above information (particularly the last column) can then be included in the traditional business counts tables. A partial extract from the publication's Businesses by Employment Size Ranges table is included below.

BUSINESSES BY EMPLOYMENT SIZE RANGES(a): June 2010–June 2012
		Operating at start of financial year	Entries(b)	Exits	Net movement of surviving businesses(c)	Operating at end of financial year	Change	Percentage change
		no.	no.	no.	no.	no.	no.	%
2010–11
Non–employing		1 303 040	198 769	219 574	23 788	1 306 023	2 983	0.2
Employing
	1–4(d)	506 272	76 414	48 303	–25 709	508 674	2 402	0.5
	5–19	228 676	15 833	14 555	684	230 638	1 962	0.9
	20–199	80 787	2 804	3 734	1 149	81 006	219	0.3
	200+	5 875	390	282	88	6 071	196	3.3
Total employing		821 610	95 441	66 874	–23 788	826 389	4 779	0.6
Total		2 124 650	294 210	286 448	–	2 132 412	7 762	0.4
2011–12
Non–employing		1 306 023	191 904	212 120	20 286	1 306 093	70	–
Employing
	1–4(d)	508 674	77 042	48 175	–22 587	514 859	6 185	1.2
	5–19	230 638	15 410	14 253	–149	231 591	953	0.4
	20–199	81 006	2 729	3 769	2 360	82 326	1 320	1.6
	200+	6 071	436	336	90	6 411	340	5.6
Total employing		826 389	95 617	66 533	–20 286	835 187	8 798	1.1
Total		2 132 412	287 521	278 653	–	2 141 280	8 868	0.4
– nil or rounded to zero (including null cells)
(a) Please refer to paragraphs 53–57 in the Explanatory Notes for more information regarding employment size ranges.
(b) The entries for 2009–10 include an estimated 20,909 businesses arising from a change in processing procedures for LTNRs by the ABS. Please refer to paragraph 22 in the Explanatory Notes for more information.
(c) The net movement of surviving businesses is calculated by subtracting the total outflow at the end of the financial year from the total inflow at the end of the financial year. See Technical Note and Glossary for more information.
(d) A small number of businesses which have ITW roles for purposes other than withholding amounts from wages and salaries (and as such have zero employment), are included in this category.

17 Including the net movement of surviving businesses column in the employment size ranges table provides more detailed (point in time) information about the movement of businesses within specific business size ranges, whilst maintaining additivity within each business size table. For example, the table above demonstrates that during 2010–11, part of the 196 change recorded for businesses employing '200+' employees was driven by the net movement of 88 surviving businesses in this employment size range. That is, during 2010–11, there was a positive net movement of 88 existing small or medium businesses which grew to become large businesses.


Application within Other Tables

18 While it is possible to develop similar tables and data cubes for the other classifications (industry, main State of operation, institutional sector and type of legal organisation) used in CABEE, ABS investigations have determined that relatively few businesses tend to change these classifications values from year to year. Thus, allowing for the classifications to change over time appears to offer limited additional information while increasing the complexity of the tables (including introducing a need to confidentialise data for those rare changes in classifications). For these reasons, additional tables for the non business size range topics have not been created in this version of CABEE.