An empirical analysis of Australian home-based business size and profit performance

The main objective of this research is to identify the factors associated with the performance of Australian home-based businesses (HBBs). The dimensions of performance considered are size and profit. Measures of HBB size used are number of equivalent full time employees and annual sales, and the measures of profit are sales less expenses and the profit to sales ratio. Presently, this is a sector of the small business community that is not well understood. From a practical perspective, the identification of factors indicative of HBB size and profit performance assists policy makers to implement new or fine tune existing initiatives directed at HBB. Additionally, it may improve the selection of growth oriented HBBs most likely to benefit from inclusion in targeted training and assistance programs/ initiatives. Indirectly, this study also examines the role of other types of infrastructure support, namely the impact of local and state government regulations and the influence of new technology adoption on HBB performance. The study draws on issues such as the role of gender, industry sector, business age, prior experience, family, hours worked, degree of formal planning, financing, location, and networking on enterprise formation and development. Survey data was collected from a convenience sample of 4,133 Victorian HBBs, with 756 usable returns. The analysis shows that the factors identified that have a relatively strong positive association with HBB performance in employment, sales and profit are total business expenses, the proportion of total business expenses spent on labour, the age of the business and the use of information and communication technology. The positive association found between the amount of external financing used and HBB employment and sales suggests that it would be beneficial to ensure providers of finance understand the financial needs of HBB and their unique characteristics. The issues that warrant further investigation based on the findings of this study include whether the positive association between the use of information and communication technology and performance is appliance specific; whether local and state government regulations were generally not found to affect HBB performance due to lack of relevance, lack of awareness or knowing breaching regulations; and the lack of apparent association between HBB performance and networking activity given the inconsistency with SME literature.