BRISBANE, Australia - AussieJournal -- Australian data company Bstar Pty Limited (Bstar) has deeply examined the key specific risk and value drivers impacting Australian SMEs.

By way of background, the Australian business landscape is dominated by Small and Medium Enterprises (SMEs). According to the Australian Bureau of Statistics (ABS), 97.2% of all businesses are classified as small, 2.6% as medium, and just 0.2% as large. The ABS defines small businesses as those employing 0–19 employees, medium businesses as employing 20–199 employees, and large businesses as employing 200 or more employees.

Bstar, through a survey of 16,810 Australian SME owners, identified seven key risks commonly faced by Australian small business owners. The survey, based on Porter's Five Forces, asked business owners to respond to 80 questions covering ten key risk areas that impact their businesses and to rate their level of concern for each risk.

Survey Results

The survey revealed that the two greatest risks facing the Australian SME sector are owner reliance and the impact on business goodwill if the owner were to depart:

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2,791 SME owners surveyed rated owner reliance as their biggest concern.
Only 5% of business owners believe their business would operate effectively without them.
The remaining five risks, in order of significance, are:
profitability, cash reserves, owners' value gap, customer sensitivity and penetration, and cash flow.

Given the structure of the Australian business landscape, it is unsurprising that owner dependence emerges as a key company-specific risk – one that should be carefully considered when determining the specific company risk component of an equity discount rate. This experience is likely mirrored across the global SME economy.

A common issue identified when reviewing SME valuations is that valuers often do not examine key company risks, financial and non-financial KPIs, or benchmark these against comparable businesses. Understanding a SME's key risks, profit, and value driver benchmarks helps valuers justify their discount rate assumptions with greater confidence and evidence.

To learn more about business valuation, visit https://azimuthpartners.com.au/business-valuation/ and book an appointment with our team.