Which Industry Hosts the Most Small Businesses?

When we talk about small businesses independent firms that typically employ fewer than 20 people, the first question that pops up is: which industry a broad economic sector grouping similar activities actually houses the biggest chunk of them?

Answering that helps entrepreneurs spot market saturation, policymakers shape support schemes, and investors locate the next wave of growth. In this guide we’ll pull the latest Australian Bureau of Statistics (ABS) data, break down the top sectors, compare numbers, and show you what the figures mean for anyone eyeing a new venture.

Why Counting Small Businesses Matters

• They generate more than 50% of all new jobs in Australia.
• SMEs account for roughly 98% of all enterprises.
• Understanding sector concentration guides where grants, tax incentives, and training programmes are most needed.

In short, a clear picture of which industry leads the pack can shape everything from city‑level economic plans to individual business strategies.

Data Source: Australian Bureau of Statistics (ABS)

The ABS runs the Counts of Australian Businesses (COAB) survey each year. The 2023 release - the most recent at the time of writing - splits businesses into 21 industry classes based on the Australian and New Zealand Standard Industrial Classification (ANZSIC).

Key attributes we’ll use:

1. Number of small businesses per industry.
2. Share of total SMEs.
3. Growth trend from 2021 to 2023.

Top Five Industries by Small‑Business Count (2023)

Notice how the top three together capture over 60% of all small firms. Retail dominates because it requires relatively low capital to set up a shop or an online storefront. Construction follows thanks to the steady demand for residential upgrades.

Deep Dive: Why Retail Trade Leads

Retail’s edge is driven by three factors:

1. Low entry barriers - a pop‑up shop or a home‑based e‑commerce site can launch with under $10,000.
2. Strong consumer confidence - the ABS recorded a 2.1% rise in household spending in Q3 2024.
3. High turnover potential - niche retailers often achieve > 20% annual growth when they nail a local market.

However, the sector also carries high churn. About 12% of retail SMEs close within the first two years, mainly due to cash‑flow squeezes and competition from large chains.

Construction: Steady Demand Meets Skill Shortage

Construction firms usually start as sole‑trader operations offering painting, tiling, or carpentry services. The ABS notes a 4.3% rise in small construction businesses between 2021 and 2023, fueled by the government’s “Housing for All” initiative.

But a chronic shortage of qualified tradespeople pushes up labor costs, which cuts profit margins. For entrepreneurs, the sweet spot lies in specialised niches - e.g., eco‑friendly retro‑fits or modular home kits - where competition is thinner.

Professional, Scientific & Technical Services - The Knowledge‑Economy Backbone

This sector packs a punch despite a lower headcount. Business‑to‑business services like bookkeeping, digital marketing, and engineering consultancy often require only a laptop and a professional credential.

Growth rates here topped 9% annually in the last two years, thanks to the digital‑transformation push across all Australian industries. If you hold a relevant qualification, setting up a solo practice could be a low‑risk entry.

Health Care & Social Assistance - A Rising Community Need

Population ageing in Australia drives demand for allied‑health services, home‑care, and small clinics. The ABS recorded a 6.7% increase in small health‑care providers from 2021‑2023.

Regulatory compliance is the biggest hurdle - you’ll need proper licensing and insurance. Nevertheless, the sector offers stable cash flow because services are often essential and reimbursed through Medicare or private health plans.

Small‑Scale Manufacturing - The Underrated Player

While not the top‑ranked industry, small‑scale manufacturing still hosts nearly 300 k businesses, covering food processing, custom metalwork, and boutique furniture. The sector benefits from “Made‑in‑Australia” branding and government grants aimed at boosting local production.

Key challenges include access to affordable machinery and compliance with safety standards. Partnering with a local university’s engineering department can provide R&D support at low cost.

How to Use This Data for Your Own Venture

• Identify gaps. Scan the top industries for sub‑niches with fewer players - e.g., sustainable pet‑care products within Retail.
• Match skill set to sector. If you have a trade qualification, construction or manufacturing may give you a head start.
• Leverage government schemes. The “Small Business Grant Boost” (available until Dec 2025) offers up to $15,000 for projects in the top three industries.
• Plan for scalability. Retail and professional services scale easily online, while construction and manufacturing often need physical expansion.

By aligning your strengths with the industry that already supports a high volume of small firms, you’ll tap into existing supply chains, customer bases, and support networks.

Key Takeaways

• Retail Trade leads with 31% of all Australian small businesses.
• Construction and Professional Services round out the top three, together accounting for nearly 60%.
• Growth trends favor sectors with low entry costs and strong government backing.
• Understanding sector dynamics helps you choose a viable, growth‑friendly niche.