Small businesses spend $100k at other small businesses each year: The value of collaboration

One of the peak bodies representing Australian small businesses has called on local governments to do more to help business owners start and grow their enterprises, in light of research that highlights the economic value of small businesses shopping small.

Research released today by American Express as part of its Shop Small campaign reveals small Australian businesses, on average, source goods and services from 4.4 other small suppliers each month.

In a typical month, these businesses spend an average of $8,600 with other small businesses, or approximately $103,000 a year, according to the study.

Of the more than 500 small businesses surveyed, 24% of respondents reported spending more than $10,000 with other small businesses each month, while 10% spend in excess of $20,000.

Based on an average monthly spend of $8,600, American Express estimates Australia’s 1.98 million small businesses spend around $204 billion with other small businesses each year.

Delving further into what it calls the “shopkeeper economy”, the study found around a third of small businesses directly benefit from other small businesses setting up shop nearby.

A quarter (24%) of survey respondents said the arrival of new businesses makes it easier to source products and services locally, while a third said these new businesses bring with them increased customer traffic (32%) and increased profits (31%).

There’s also value in collaborating with nearby businesses, in addition to sourcing goods and services locally. More than 80% of the survey respondents said they would definitely like to collaborate with other small businesses, or are open to greater collaboration.

Peter Strong, chief executive of the Council of Small Business of Australia, says he has seen numerous examples of small businesses collaborating, whether it is the case of an antique bookseller and gift retailer, both based in Canberra, who teamed up to further their trade in China, or small businesses choosing to sponsor local sporting clubs and events.

However, with stories of prospective small business owners being forced to jump through hoops and pay costly registration fees in order to set up their business, Strong says local governments often “still get in the way”.

“We have more dealings with local governments than state or federal governments,” he says.

While he says there are no doubt some local councils that support their local businesses, there are also plenty of examples of council decisions that have caused small businesses to close.

The value of creating an environment in which small business thrive and continue to spend money with other small businesses can’t be underestimated, Strong says.

“The money stays in the community,” he says.

“If it’s spent with big businesses, it goes elsewhere.”