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Australian mid-market businesses punching well above: says latest research by BDO

20 December 2017

Latest research from leading accounting and consulting firm, BDO shows that businesses in the middle market – those with annual turnovers between $10 million and $250 million - are punching well above their weight when it comes to contributing to the Australian economy.

According to the BDO report - Uncovering Australia’s middle market - midmarket companies represent just 2% of registered companies in Australia, but they account for over 18% of net tax and 23% of total income.

BDO Sydney Managing Partner, Grant Saxon, said the slice of the Australian economy which continues to tick the box for economic success is the quiet-achieving middle market.

“At BDO, we consider the mid-market to be Australia’s factory for growth,” Mr Saxon said.

“Mid-market businesses are unique in that they are large enough to invest and make a meaningful impact on the economy, yet small enough to be entrepreneurial and nimble, often with a clear market niche.  Whilst there is plenty of innovation occurring in the start-up community, innovation is commercialised in the mid-market.

“In a rapidly changing environment, middle market businesses have the advantage of being nimble and agile, have access to resources, but are not held back by the hierarchal structures you often see in some larger companies. This enables them to respond quickly and innovatively to a rapidly changing business environment.

“The size of these businesses can therefore become a competitive advantage and a basis for growth and success. The ability to adapt and quickly respond to changing markets are key characteristics of successful businesses in the middle market.

“Mid-size businesses are still entrepreneurial in the way they approach their strategy and its implementation. They look corporate, but they’re not hampered by layers of bureaucracy that can slow down the time it takes to make decisions.”

In Australia, the middle market covers all industry segments and consists of close to 18,000 registered companies that include both taxable and non-taxable businesses. Within this market size there are also 4,000 trusts, 1,000 partnerships, nearly 300 individuals and over 100 super funds. The result is a market with 23,706 individual entities.

Report findings:

  • Of the nearly 18,000 companies in the middle market, the largest number are in wholesale trade. Companies operating in the wholesale trade industry make up 18% of the middle market comprising 3,246 registered companies. The second, third and fourth largest industries by total number of companies within the middle market are construction (2,592), manufacturing (2,412) and retail trade (1,952). These are also the four industries with the largest total income. With total market income equal to $645 billion, the top four industries by income equate to 56% of total middle market.
  • When it comes to making a profit in the middle market, the ranking tables turn. The most profitable middle market industry is the financial and insurance services industry. According to the Australian Taxation Office’s most recently published records, the financial and insurance services industry made a total profit of $17 billion, which is 54% of market profit. Finance and insurance, however, represent just 9% of Australian GDP. This means that just 9% of companies in the middle market contribute over half (54%) of market profits.
  • The mining and information media and telecommunications industry, by comparison, were the only industries to come away with a net loss. The financial and insurance services industry has the largest asset value in the middle market, followed by mining, manufacturing and wholesale trade. The middle market paid $13 billion in tax. The large earners in the middle market industries pay the price for their revenues, with three of the 20 industry segments (financial and insurance services, wholesale trade and manufacturing) paying 47% of total market tax.

The report was prepared in conjunction with McCrindle Research and is now available online.

Research methodology

The ‘middle market’ definition is based on data used by the Australian Taxation Office (ATO) and their delineation of revenue as well as research by the Australian Graduate School of Management.