From Passion to Profit: Closing the Capability Gap in Australia’s Small Business Sector

Abstract

This whitepaper explores the importance of capability in shaping small business success across Australia. Drawing on recent national data and behavioural research, it highlights the practical gaps that prevent many small business owners from turning passion into profit—particularly in areas like financial literacy, digital skills, planning, and confidence. It outlines structural recommendations for local, state, and federal government, and provides actionable policy options to improve long-term business viability. The paper aims to inform decision-makers, ecosystem partners, and advocates working to strengthen the future of Australia’s micro and small business sector.

Summary

Small businesses make up over 97% of all businesses in Australia and employ nearly half of the private sector workforce. While many are launched from a place of passion and skill, long-term success depends on more than just a good idea. Many small business owners face challenges that limit their sustainability—especially when it comes to managing finances, thinking strategically, using digital tools, and building the confidence to grow.

Recent data from the Australian Bureau of Statistics (2024), the Australian Taxation Office (Hirschhorn, 2022), and the Queensland Small Business Commissioner (2024) show that a large proportion of small business owners earn below the minimum wage. Many operate without structured support and are excluded from income safety nets. These trends point to a national challenge—especially in the lead-up to the federal election.

This whitepaper explores:

• How the small business sector is currently tracking

• What’s holding some businesses back from growth or stability

• Where governments, councils, and business networks can step in

• Why outcomes—not activity—should drive support measures

• What policy shifts could make the biggest difference

Introduction – The Power and Promise of Small Business

Australia’s small businesses reflect the country’s entrepreneurial spirit, community character, and economic diversity. With more than 2.5 million of them active across the country, these businesses come in all sizes, sectors, and stages of growth.

But many are under pressure. It’s not a lack of motivation—it’s the reality of rising costs, inconsistent cash flow, limited support, and a policy environment that hasn’t evolved to match how small businesses actually operate. High dropout rates, low reported income, and ongoing mental load point to a system that celebrates small business in rhetoric but often underdelivers on results.

According to the Australian Bureau of Statistics (2024), small businesses represent 97.6% of all actively trading businesses in Australia. Yet, ABS and ATO data indicate that a large proportion of these businesses are sole traders or microbusinesses, with around 70% earning under $75,000 annually and many earning below the minimum wage (Hirschhorn, 2022). These businesses form the backbone of local economies and regional innovation—but many operate without structured support, resilience planning, or accessible safety nets.

This paper looks at these challenges through a capability lens. Instead of focusing solely on grants, compliance burdens or innovation funding, it asks a more practical question: What does it really take to turn a passion into a sustainable business? And what role should government, industry, and the broader ecosystem play in helping that happen?

By bringing together behavioural insights, program data, and current policy gaps, this paper offers a pathway forward: one focused not just on startup numbers, but on long-term capability, business owner wellbeing, and meaningful economic participation.

The State of Australia’s Small Business Sector

Australia’s small business landscape is large, diverse, and increasingly essential to both economic output and regional stability. According to the Australian Bureau of Statistics (2024), there were 2.66 million actively trading businesses in Australia as of June 2024, with 97.6% classified as small businesses. This includes a significant portion of sole traders, microbusinesses, and non-employing enterprises—highlighting the depth of entrepreneurial activity across urban, regional, and remote areas.

However, the path from startup to sustainability is far from assured. In 2023–24, the business entry rate was 16.8%, while the exit rate was 14.0%. Over half of the businesses that began operating in 2019–20 had ceased trading by 2023, illustrating how fragile the early years of business ownership can be (ABS, 2024).

Further compounding this challenge is the stark income disparity in the sector. The Australian Taxation Office reports that around 70% of small businesses earn under $75,000 per year, and 26% report no taxable income at all (Hirschhorn, 2022). Many of these business owners invest full-time effort in their ventures yet report earnings well below the national minimum wage. This raises critical questions about sustainability, income protection, and the structural barriers to growth.

The Queensland Small Business Commissioner’s 2024 report, Understanding the Lifecycle and Mindset of a Small Business Owner, adds further behavioural insight to this picture. It identifies four common mindsets—Dreamer, Doer, Doubter, and Deliberate—each associated with different stages of business maturity, resilience, and decision-making capacity. Importantly, the report finds that many business owners remain in reactive or survival states for years, without ever progressing to a deliberate, growth-oriented mindset.

The same report highlights that small businesses with no financial systems—no budgeting, no cash flow tracking, no pricing strategy—are significantly more likely to fail. The presence of even basic financial tools and structures can dramatically improve decision-making and early intervention when challenges arise.

Taken together, the data presents a clear message: Australia’s small business sector is energetic but under pressure. The challenge is not that small business owners lack motivation or ideas—it’s that many are operating without the core capabilities, systems, and support structures needed to build long-term resilience.

The Capability Gap – Five Areas That Define Success or Struggle

Through extensive program delivery, national research, and behavioural insights, five recurring capability gaps have emerged as critical to small business success. These are not just “nice-to-have” skills—they are the difference between staying afloat and building a viable business.

1. Financial Acumen
Many business owners lack confidence in managing their finances. This includes setting pricing, managing debt, forecasting income, and understanding tax obligations. The Queensland Small Business Commissioner (2024) notes that businesses without even a basic financial system—like a cash flow tracker or expense ledger—are significantly more likely to fail. ASIC’s 2023 insolvency data backs this up, showing poor cash flow and inadequate record-keeping as the leading causes of small business insolvency. Jobs Queensland (2021) also identifies financial literacy as one of the five most important capabilities for small business sustainability.

2. Strategic Clarity
Without a clear plan or direction, many businesses operate reactively. The QSBC (2024) report found that most owners prioritise day-to-day tasks over planning and rarely revisit their business model. This makes them vulnerable to market shifts and external shocks. Strategic clarity—knowing what your business does, who it serves, and how it grows—is often the difference between staying in survival mode and building a future.

3. Digital Readiness
Digital tools offer huge potential for growth and efficiency, but many small businesses struggle to keep up. The Connectivity Compass (Australian Impact Group, 2024) outlines four enablers of digital capability: infrastructure, affordability, confidence, and skills. If even one is missing, a business’s ability to engage in e-commerce, automate admin, or reach new customers is compromised. Jobs Queensland (2021) found that 31% of small businesses in Queensland struggle with technology change, while OECD (2023) data shows that small firms globally lag significantly behind larger businesses in digital adoption.

4. Entrepreneurial Confidence
Confidence impacts decision-making, willingness to seek support, and resilience under pressure. The QSBC (2024) found that business owners who identify as “doubters” or “survivors” often avoid engaging with advisors, resist change, and are more likely to underinvest in systems or learning. Confidence isn't bravado—it’s the quiet ability to act, adapt, and move forward even when uncertain.

5. Risk and Compliance Management
Many small businesses have no documented policies or systems for managing legal, operational, or financial risk. This includes everything from WHS and cyber security to privacy obligations and insurance. ASIC (2023) notes that risk blind spots are a common feature of failed businesses. OECD (2023) and DEWR (2022) have also highlighted the disproportionate compliance burden faced by micro and small enterprises that often lack specialist support.

These five gaps are rarely isolated. When one weakens—such as poor financial literacy—it often drags others down, like strategic focus or confidence. That’s why capability-building must be delivered holistically, not as disconnected skills or ad hoc training sessions. It’s the combined lift in knowledge, systems, and mindset that gives small businesses the best shot at long-term success.

What Drives Small Business Success – Beyond Grants and Goodwill

While much attention is given to what holds small businesses back, it's equally important to understand what drives their success. The most resilient and sustainable businesses don’t always start with the most capital, the slickest branding, or the strongest networks. They succeed because they build clarity, capability, and confidence—step by step, often under pressure.

Insights from Jobs Queensland (2021), OECD (2023), DEWR (2022), ASBFEO (2024), and the Queensland Small Business Commissioner (2024) reinforce this: capability is not just a skills gap—it’s a system. And when that system is supported by the right mindset, resources, and access to community support, small businesses are more likely to not only survive, but thrive.

Clarity of Purpose and Strategy
Successful small businesses have direction. They may not have a 40-page business plan, but they can clearly articulate who they serve, how they create value, and where they’re heading next. Strategic clarity enables better decision-making, more intentional investment, and a sharper response to change. The QSBC (2024) report found that businesses with a deliberate mindset were significantly more likely to make proactive improvements across their operations.

Willingness to Seek Support
Isolation is a major barrier for small business owners—particularly in regional areas. The most resilient operators actively seek connection: with mentors, peers, accountants, or local chamber networks. OECD (2023) data shows that access to a supportive ecosystem—especially one that understands the local context—is one of the most influential drivers of SME adaptation and innovation.

This is echoed in program outcomes across Queensland, where business owners engaging in peer-based support programs reported increased confidence, better decision-making, and more sustained business planning. Those who isolate, on the other hand, often delay crucial decisions and miss out on critical early interventions.

Investment in Capability
The businesses that survive are not always the most funded—but they are often the most curious. They regularly invest time in learning: how to manage cash flow, use digital systems, price effectively, and understand their customers. Programs like Self-Employment Assistance (DEWR, 2022) and place-based initiatives like regional mentoring, accelerator hubs, and the Start Right SME Business Academy demonstrate the power of accessible, context-aware capability building.

Importantly, these programs work best when they’re not just information dumps—but are structured, supported, and help business owners implement change.

Resilience and Adaptability
Resilience is not just a personality trait—it’s a capability. Businesses that endured shocks like COVID-19, natural disasters, or digital disruption typically shared three traits: strong systems, flexible thinking, and community connection. ASBFEO’s Small Business Pulse (2024) found that businesses with integrated digital tools, regular performance review habits, and a strong support network were significantly more likely to adapt and bounce back.

Adaptability isn’t a luxury—it’s becoming essential in a volatile and uncertain economy.

The Common Thread: Capability
All of these drivers—clarity, connection, confidence, and continuous learning—point to one thing: capability is the engine of small business resilience. It's not about downloading a checklist. It's about building internal systems, external support, and the personal capacity to make good decisions under pressure.

Supporting small business success isn’t just about funding startups—it’s about creating the conditions that allow small business owners to grow with certainty, stability, and self-belief.

The Role of Government, Councils & Ecosystem Enablers

Supporting small business isn’t the job of one department, one grant, or one level of government. It’s an ecosystem-wide responsibility. Whether it’s helping business owners navigate red tape, build systems, or access opportunities, every player—from local council to federal treasury—has a role to play in shaping a more resilient and capable small business sector.

Yet too often, support for small business is fragmented, reactive, or focused more on visibility than viability. A shift is needed—from support theatre to shared accountability.

Local Government: Enablers of Access and Visibility
Councils play a frontline role in the small business journey. They manage the public spaces businesses operate in, influence local procurement, and are often the first place new entrepreneurs turn to for guidance. When councils are proactive—by activating main streets, simplifying permits, and funding local capability programs—they create fertile ground for business survival.

Regional and rural councils also play a critical role in building place-based economic development strategies that link business support with community outcomes. In areas where business advisory support has been embedded in council-led economic development plans, business owners report higher confidence and connection to opportunities.

State Government: Builders of Capability Pathways
State governments manage much of the training, employment, and innovation infrastructure that small businesses touch—through TAFE systems, regional development agencies, and grant programs. Initiatives like the Business Basics and Business Boost grants in Queensland have helped raise awareness and engagement. However, research from Jobs Queensland (2021) and the QSBC (2024) shows that one-off funding rounds are not enough.

What’s needed are long-term, structured investments in capability—especially for sole traders, microbusinesses, and those in under-served regions. These investments must prioritise behavioural outcomes: business owners gaining financial control, implementing systems, and improving their decision-making.

This need became even clearer during the Business Concierge Project pilot in the aftermath of the 2019 North Queensland flood event. While the program aimed to support businesses affected by the disaster, the data revealed a confronting truth: many of the businesses most at risk were already on unstable ground before the flood hit. They lacked foundational capabilities—such as reliable financial systems, diversified revenue streams, and clear operational strategies. The disaster didn’t create new problems; it exposed and accelerated the vulnerabilities that were already there.

This insight reframes the way recovery and resilience funding should be approached. It highlights that true economic preparedness lies not just in how we respond to shocks, but in how well we build baseline capability well before they occur.

Federal Government: Shaping the Policy Environment
The federal government holds the levers that define the small business experience—tax systems, Centrelink eligibility, employment policy, and access to national programs. While the Treasury’s National Small Business Strategy 2025 outlines plans to elevate the voice of small business in policy development, many current programs are still evaluated based on activity rather than outcomes.

There is an urgent need to move beyond symbolic consultation and build policy that reflects the lived realities of small business owners: irregular income, pressure to reinvest earnings, limited admin capacity, and the absence of safety nets.

Ecosystem Enablers: Translating Policy into Practice
Industry associations, chambers of commerce, innovation hubs, and non-profit organisations are often the bridge between strategy and implementation. These groups have the trust of business owners and the contextual knowledge to tailor support programs to local needs.

When empowered with funding, flexibility, and a clear mandate, these enablers can deliver programs that stick. They are also well positioned to provide feedback loops to government—ensuring that policy design stays grounded in business reality.

What’s Needed: A More Connected System
Rather than treating support as a one-off intervention, Australia’s small business ecosystem needs a more coordinated, outcomes-based model:

• Local councils activating communities and connecting business owners to resources

• State governments funding long-term capability uplift—not just compliance training

• Federal policies that reflect real-life challenges and reward practical growth

• Intermediaries who deliver trusted, accessible support at the coalface

By aligning on shared goals and investing in capability, we can transform how Australia supports small business—not just in starting up, but in standing strong.

Beyond Support Theatre – A Call for Public Sector Accountability

Small business is regularly described as the backbone of the Australian economy—but the support structures intended to strengthen it often fall short. Too much of what’s offered is superficial, short-term, or centred around optics: awareness campaigns, crowded grant portals, or training measured by sign-ups instead of outcomes.

This is what many small business owners experience as support theatre—where the appearance of help replaces actual, measurable impact.

Why the Current System Falls Short

Most support programs are assessed based on activity: how many people clicked, downloaded, or attended. But these metrics don’t reflect whether a business gained control of its finances, implemented a pricing strategy, or hired their first staff member.

Public sector funding and policy are often siloed and operate on short budget cycles, leading to one-off grants and projects that disappear just as business owners are beginning to engage. Program evaluations frequently miss long-term viability, with no follow-up on whether a business is still operating 12 or 24 months later.

The Hidden Poverty of Under-Supported Entrepreneurs

There’s also a deeper, more confronting issue at play—one that hides in plain sight. Many small business owners, particularly sole traders and microbusinesses, are earning below the minimum wage. Yet they are excluded from income safety nets.

Centrelink policies often treat business building as “not real work,” disqualifying people from support unless they’re job-seeking—even when they’re working full-time hours in their business. DEWR’s (2022) Self-Employment Assistance program attempts to bridge this gap, but eligibility remains tightly constrained and the administrative burden high.

This creates a form of hidden poverty. Entrepreneurs are lauded for “having a go” but left without a safety net if things don’t immediately succeed. They're not recognised as unemployed, not fully employed, and not supported to persist. The system inadvertently punishes them for trying.

A New Standard for Accountability

If government, policy-makers, and business support partners are serious about improving small business outcomes, the metrics must shift:

• Track outcomes, not activities: Did the program result in improved financial literacy, business planning, or revenue stability?

• Redesign income support rules to recognise viable self-employment as meaningful economic participation.

• Remove asset-based exclusions for crisis payments when business income drops significantly—especially for sole traders and microbusinesses.

Australia’s small business owners are not asking for handouts—they’re asking for structures that recognise the risk, commitment, and economic contribution of what they do. Public sector accountability means backing those who take the leap, with support that sticks.

Election-Ready Policy Recommendations

With a federal election on the horizon, there’s a unique opportunity to move from symbolic support to structural reform. If Australia is serious about strengthening small business, we must stop measuring impact in terms of visibility and start measuring it in terms of viability.

These policy recommendations are grounded in behavioural research, program delivery insights, and national data. They are designed to create practical, measurable change for sole traders, microbusinesses, and small enterprises across regional, urban, and under-served communities.

1. Establish a National Microenterprise Capability Fund
Create a targeted, outcomes-based capability funding pool for sole traders and microbusinesses. Delivered through trusted local partners—such as chambers of commerce, business support organisations, Indigenous enterprise hubs, and regional networks—this fund would resource structured mentoring, systems development, digital adoption, and financial management programs.

Funding would be tied to measurable capability outcomes rather than attendance or awareness.

2. Launch a Small Business Minimum Earnings Supplement
Recognise that many business owners operate full-time while earning below minimum wage, particularly in early or rebuilding phases. Introduce a transitional income supplement—structured similarly to JobSeeker or Austudy—that supports viability while businesses gain traction.

Eligibility should include proof of trading activity, hours invested, or engagement in structured capability programs. This would create a buffer zone between income instability and financial collapse.

3. Reform Centrelink Participation Rules for Self-Employment
Redesign mutual obligation and income reporting rules so that business building is recognised as valid economic participation. Current policies penalise business owners for reinvesting profits, lacking regular income, or not job-seeking while growing their enterprise.

Simplified eligibility rules, reduced red tape, and alignment with capability milestones (e.g. participation in Self-Employment Assistance, mentoring, or training) would provide dignity and stability for thousands of business owners currently stuck in limbo.

4. Introduce Microbusiness Procurement Targets
Set procurement quotas for local, state, and federal government that allocate a portion of contracts—directly or via subcontracting—to verified micro and small businesses. Prioritise inclusive opportunities for Indigenous businesses, women-led enterprises, and businesses in regional areas.

Incorporate capability-building into procurement frameworks to ensure businesses gain skills and systems alongside contract opportunities.

5. Develop and Report Against a National Small Business Capability Index
Create a national measurement framework that tracks the underlying health of Australia’s small business sector—not just startup counts, but capability across financial management, digital adoption, risk readiness, and resilience.

This could build on existing tools like ASBFEO’s Small Business Pulse, the Connectivity Compass (AIG, 2024), and state-based program data. Tracking this index annually would provide early warnings, guide policy design, and keep funding accountable to outcomes.

6. Modernise Tax and Crisis Support Systems for Small Business
Simplify tax reporting for low-earning sole traders, raise eligibility thresholds for small business tax offsets, and review the role of GST registration thresholds in inhibiting growth.

Enable crisis support payments to be accessed by small business owners without punitive asset tests, especially where income has ceased but fixed costs (like loans or inventory) remain. Flexibility, fairness, and trust must be baked into the system.

These recommendations are not radical—they are practical. Each one reflects what small business owners have been saying for years: “We don’t want a handout. We want a fair go—and the chance to build something sustainable.”

Case Study – Start Right SME Business Academy

Across Australia, small business capability programs are evolving. There is growing recognition that while passion may spark a new business, capability is what sustains it. The most effective support isn’t delivered in isolation—it’s embedded, practical, and aligned to the real-world needs of sole traders and microbusinesses.

The Start Right SME Business Academy is one such example.

Developed by the Australian Impact Group, Start Right is a three-month digital program designed for individuals at the very early stages of business—or those looking to stabilise and strengthen an existing microenterprise. The course focuses on building foundational business capability across five key areas:

• Financial management and pricing

• Planning and clarity of purpose

• Digital systems and operations

• Customer understanding and engagement

• Resilience, mindset, and sustainability

The program structure is intentionally accessible: delivered online, with six months’ access to content, tools, templates, and peer support. Participants can move at their own pace, access targeted micro-learning modules, and connect with others on similar journeys. It’s supported by chambers of commerce, community organisations, and local councils—creating a distributed model of grassroots capability-building.

Start Right reflects many of the themes outlined in this paper:

• It meets business owners where they are—without jargon or judgement

• It prioritises implementation over information

• It recognises that confidence and clarity are as important as compliance

• It can be adapted for regional, remote, and culturally diverse contexts

While not the only solution, programs like Start Right offer a practical blueprint for how government, industry, and community partners can build sustainable small business ecosystems—by focusing not just on start-ups, but on those still standing after year two.

Final Thoughts

Australia’s small business owners aren’t just running businesses—they’re building livelihoods, strengthening communities, and shaping local economies. They take risks, work long hours, and back themselves when no one else will. But too often, the systems around them don’t return the favour.

Support for small business needs to evolve. Not with more paperwork, more platitudes, or short-term campaigns—but with practical, measurable investment in capability. The kind that helps people understand their numbers, build systems, plan for change, and stay in the game long enough to succeed.

This paper is a call to shift the conversation—from activity to impact, from theatre to transformation. It’s a call for councils, governments, and ecosystem enablers to recognise that real support doesn’t happen in headlines—it happens in the everyday decisions that make or break a business.

We know what works. We’ve seen what’s possible. Now it’s time to act with focus, humility, and purpose—so that turning passion into profit is not just a possibility, but a genuine, supported path for more Australians.

References

Australian Bureau of Statistics (2024). Counts of Australian Businesses, including Entries and Exits, July 2020 – June 2024. Canberra: ABS.

Australian Impact Group (2020). Business Concierge Project Report: Post-Flood Business Resilience in North Queensland. Townsville: Australian Impact Group.

Australian Impact Group (2024). The Connectivity Compass: Framework for Digital Inclusion and Capability Building in Regional Australia. Townsville: Australian Impact Group.

Australian Securities and Investments Commission (ASIC) (2023). Insolvency Statistics – External Administrators’ Reports (July 2022 to June 2023). Canberra: ASIC.

Australian Small Business and Family Enterprise Ombudsman (ASBFEO) (2024). Small Business Pulse. Canberra: ASBFEO.

Department of Employment and Workplace Relations (DEWR) (2022). Self-Employment Assistance Program Guidelines. Canberra: Australian Government.

Hirschhorn, J. (2022). How can we continue to work together to help small businesses thrive and survive. Speech by Second Commissioner of Taxation, IPA National Congress, 18 November 2022. Australian Taxation Office.

Jobs Queensland (2021). Future Work for Small Business: Skills, Capabilities and Potential. Ipswich: Queensland Government.

Organisation for Economic Co-operation and Development (OECD) (2023). SME and Entrepreneurship Outlook 2023. Paris: OECD Publishing.

Queensland Small Business Commissioner (QSBC) (2024). Understanding the Lifecycle and Mindset of a Small Business Owner. Brisbane: Queensland Government.

Treasury (2025). National Small Business Strategy 2025. Canberra: Australian Government.

Programs 

https://www.australianimpactgroup.com/startright 

https://www.australianimpactgroup.com/cyber-sense-smb-cyber-security-program

https://www.australianimpactgroup.com/innovatoreq

https://www.australianimpactgroup.com/stackplus1