Extending the benefits of digital connectivity to all of Australia’s 2.23 million small and medium enterprises (SMEs) should be a national priority. While high-speed Internet is now available to half the country via the National Broadband Network (NBN), and many SMEs use apps to streamline their operations, too many small businesses are still missing out. Thirty percent of businesses complete business activity statements (BAS) on paper according to the ATO. Business owners often work long nights and take few holidays because of the high number of manual, paper- based tasks they need to perform.

This report examines how changes in digital connectivity affect Australian SMEs. To understand the impact at the macro level, we examine the effect of faster high-speed broadband on SMEs. To understand it at the micro level, we analyse the take-up and impact of cloud-based apps on individual businesses.

Improved digital connectivity is driving business growth

The findings suggest that access to faster broadband and cloud-based apps support business growth and employment. Among businesses on Xero, those in mature NBN regions grew employment by one-third more (2.6 percentage points) than businesses in non-NBN regions in 2017. Businesses that subscribed to Xero in mature NBN regions grew revenue by almost two-thirds more (3.2 percentage points) than peers in non-NBN regions. Non-NBN regions refer to areas where the NBN had not rolled out in 2016, while mature NBN areas refer to regions where the NBN had been available for an extended time and/or was available to a high percentage of premises.

A major change in activity for SMEs has been the rise of cloud-based applications, or apps, which have enabled SMEs to improve their performance. Cloud-based apps store their software and customer data on secure, enterprise-grade remote servers instead of on a business’s premises. This gives businesses the freedom to access their information, updated in real time, regardless of whether they log on from home, work or via their phone. Perhaps most importantly, apps are providing large-enterprise technology such as machine learning to SMEs, and letting small businesses automate microprocesses.

The report also finds a correlation between integrated app use and better business outcomes for SMEs. Although there are many factors that affect revenue growth and increased employment, firms that connect apps to Xero have higher revenue growth than firms with no connected apps. Overall in the 2017-18 financial year, firms on Xero using apps grew revenue by 5.5 percent. That compares with revenue growth of just 3.6 percent for firms on Xero with no connected apps.

Extending the benefits of digital to more SMEs

Improvements in the productivity and performance of SMEs are essential to the economy. The 2.23m SMEs in Australia make up 99.8 percent of all businesses. SMEs employ 68 percent of Australians, or 10.9 million people.

Critically, many SMEs are not fully participating in the digital revolution. While the NBN is now available to half the country, two-thirds of SMEs were not yet connected to high-speed broadband, based on the last count by the Australian Bureau of Statistics in 2015-16. Approximately 30 percent of businesses still lodge their BAS statements in paper form, while 14 percent of small businesses use no IT in their accounting functions. Even among businesses that subscribe to Xero, many have yet to connect apps to Xero.

Helping these businesses reap the benefits of digital transition requires overcoming a set of barriers. These include lack of awareness, lack of time to investigate options, and fear of change. Businesses, governments, IT suppliers, and financial partners and advisers can help overcome these challenges and enable more SMEs to access the benefits of digital activity. We propose a plan to extend digital benefits more broadly in section 3 of this report.

See the full report on how digital connectivity is helping Australian small businesses thrive.