TECHNICAL NOTE 1 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 2010-11 and 2011-12 financial years. During this two year period, the business:

• Did not employ any staff at the start of 2010-11 financial year
• Took on 2 employees during 2010-11
• Grew to 6 employees over 2011-12.

7 Under 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 2010, June 2011 and June 2012. 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
2010-11
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
2011-12
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 2012-June 2014
			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 2013
BUSINESS SIZE CATEGORY AT JUNE 2012
(Employment Size Ranges)(d)
	Non-employing		1 037 633	38 981	1 650	223	4	65 374	40 858	24 516
	1-4(b)		57 206	432 068	32 917	1 022	27	63 290	91 172	-27 882
	5-19		6 694	23 410	149 040	7 540	12	39 873	37 656	2 217
	20-199		1 461	868	5 293	40 655	284	8 989	7 906	1 083
	200+		13	31	13	204	3 188	327	261	66
	Total		1 103 007	495 358	188 913	49 644	3 515	177 853	177 853	-
CHANGED BUSINESS SIZE CATEGORY AT JUNE 2014
BUSINESS SIZE CATEGORY AT JUNE 2013
(Employment Size Ranges)(d)
	Non-employing		1 025 044	41 198	1 882	252	7	58 956	43 339	15 617
	1-4(b)		51 390	423 602	32 334	1 316	25	65 553	85 065	-19 512
	5-19		6 076	23 510	149 547	7 545	14	39 822	37 145	2 677
	20-199		1 471	817	5 600	40 655	328	9 347	8 216	1 131
	200+		19	28	6	234	3 109	374	287	87
	Total		1 084 000	489 155	189 369	50 002	3 483	174 052	174 052	-
- nil or rounded to zero (including null cells)
(a) Please refer to paragraphs 53-58 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) 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 Glossary and Technical Note 1 Measures of Business Growth for more information.
(d) The methodology used to derive employment size changed in the previous release. Please refer to the Technical Note 2 Improved Employment Range for more information regarding change in methodology.

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, 1,025,044 'Non-employing' businesses at the end of June 2013, remained 'Non-employing' at the end of June 2014. Equally, 3,109 businesses in the largest size category at the end of June 2013, remained in the largest size category at the end of June 2014. In the above table, it can be seen that:

• 51,390 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)
• 423,602 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)
• 32,334 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 2012-June 2014
		Operating at start of financial year	Entries	Exits	Net movement of surviving businesses (b)	Operating at end of financial year	Change	Percentage change
		no.	no.	no.	no.	no.	no.	%
2012-13
Non-employing		1 306 093	161 291	227 602	24 516	1 264 298	-41 795	-3.2
Employing
	1-4(c)	582 719	68 054	59 479	-27 882	563 412	-19 307	-3.3
	5-19	198 340	8 499	11 644	2 217	197 412	-928	-0.5
	20-199	50 522	1 302	1 961	1 083	50 946	424	0.8
	200+	3 606	83	157	66	3 598	-8	-0.2
Total employing		835 187	77 938	73 241	-24 516	815 368	-19 819	-2.4
Total		2 141 280	239 229	300 843	-	2 079 666	-61 614	-2.9
2013-14
Non-employing		1 264 298	189 769	195 915	15 617	1 273 769	9 471	0.7
Employing
	1-4(c)	563 412	82 021	54 745	-19 512	571 176	7 764	1.4
	5-19	197 412	10 546	10 720	2 677	199 915	2 503	1.3
	20-199	50 946	1 686	2 075	1 131	51 688	742	1.5
	200+	3 598	131	202	87	3 614	16	0.4
Total employing		815 368	94 384	67 742	-15 617	826 393	11 025	1.4
Total		2 079 666	284 153	263 657	-	2 100 162	20 496	1.0
- nil or rounded to zero (including null cells)
(a) Please refer to paragraphs 53-58 in the Explanatory Notes for more information regarding employment size ranges.
(b) 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 Glossary and Technical Note 1 Measures of Business Growth for more information.
(c) 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 2013-14, the 16 change recorded for businesses employing 200 employees or more was partly driven by the 87 net movement of surviving businesses in this employment size range. That is, during 2013-14, there was a positive net movement of 87 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.