17th August, 2021
What does a “medium” business look like? Understanding how various organisations define business size categories is important for several reasons.
New Zealand is a nation of small and micro businesses representing more than 97 percent of all firms. They account for 28 percent of employment and contribute over a quarter of New Zealand’s gross domestic product (GDP).
New Zealand has a higher percentage of small and micro businesses than most other countries, noting that, unlike New Zealand, most countries define small businesses as having fewer than 50 employees. Similarly, our large enterprises are generally smaller than those overseas.
While you’re probably familiar with the dominance of small businesses in New Zealand, it’s good to know exactly what that means and may even help you with your own business planning.
While there is no official definition of all business size categories in New Zealand, there are three generally accepted business category sizes.
Defined as those with less than 20 full-time employees. There are approximately 500,000 small businesses in New Zealand, of which 71 percent have no employees, the latter being often described as micro businesses.
Are more often defined as those with more than 20 employees and less than 100 employees. They represent just over two percent of all businesses in New Zealand.
Confusingly, some in New Zealand define medium businesses as having no more than 49 employees.
Depending on the definition used, there are approximately 10,000 medium-size businesses in New Zealand.
Those with more than 100 employees (or sometimes more than 50). Large businesses represent just .5 percent of businesses in New Zealand, numbering about 2,500.
Now at this stage you might be asking why you should care about the size of your business, but your business size matters.
Here are a few things to consider about the importance of business size.
You don’t have to engage employees with all the hassle that entails, it avoids any potential conflict with prospective business partners, you can be more selective with clients and projects, enjoy more time with friends and family, and choose your own work hours.
Just think, none of the endless meetings and politics you typically might find in a corporate environment.
For these reasons, some business owners choose to plan for a small, manageable operation. Unlike in high growth scenarios, this means having a keen eye for the amount of workload that will be sufficient for a lower rate of revenue growth over time.
On the other hand, working by yourself can be lonely and some find it difficult to remain focused or motivated, especially if you’re working from home.
Business partners can provide essential support, take the strain when you’re not at your best and bring other skills to the table.
Engaging employees means that you can grow your business and not have to carry out all those mundane tasks in the business which are best delegated. It also means you can build up the business for sale, and of course, a successful small business is a valuable asset.
Understanding what assistance your business needs for its size will allow you to better plan your workforce, supply and any other overheads that may increase as you take on more customers or jobs.
Having a handful of employees can be useful but typically, everything in the business is still dependent upon the sole owner, which has a number of disadvantages.
For example, becoming a larger business means you can take on more expensive, technically qualified staff or a manager so you can take a break.
It also means it’s easier to find a partner or an investor to fund the expansion of your business which can be difficult as a sole trader, not counting the need to engage expert advisors and introduce better systems to manage and grow the business.
To do any of this, you’ll need to have a clear understanding of what your business needs at each stage of growth in order to reach the next stage, while also having a view on how you’re placed within your competitive landscape.
As mentioned, there’s a difference of opinion on the cut-off point between medium and large businesses, and that’s because there’s no ‘official’ definition of business size in New Zealand.
There are a number of cases where business size categories are applied in various ways. The ones you’re most likely to come across are listed as follows.
|Institution/legislation||How it defines business size categories|
|The Ministry of Business, Innovation and Employment (MBIE)||While generally using a definition of less than 20 employees for small businesses, sometimes MBIE include mid-sized businesses within this definition.|
|Statistics New Zealand||Stats NZ do not use any specific definition across their surveys, instead using various employment and turnover measures to segment their sampling activity.|
|Inland Revenue||Starts at 49 employees for medium-size businesses.|
|Small Business Council, The Employment Relations Amendment Act, Business New Zealand and the Emergency Business Support Policy Framework||All of these define a small business, but not medium or large.|
|The Financial Reporting Act 2013||This legislation doesn’t mention the number of employees in defining a large company, using either total assets of $60m or revenue of $30m.|
It’s important to draw a distinction between business size and type of business entity because there is no direct relationship between the two.
The most common business entities in New Zealand are listed below.
Those who set up in business on their own without using a separate business entity.
Where two or more persons set up in business, sharing profits or losses, partnership liabilities and work.
A limited company is a distinct legal entity from its owners who are the shareholders in the company. The directors of a limited company manage the business and, unlike the shareholders, are responsible and liable for the company’s liabilities.
Small businesses can be either sole traders, partnerships or limited companies, whereas it’s much more unusual to find a medium or large size business trading as anything other than a limited company.
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Awareness of the business environment and the business sizes is very important.
It is an essential part of business planning which every business owner should be undertaking regularly as it is a key factor in business success. It’s also vitally important in helping you reach your goals.