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Profits per FTE are highest for small firms

Profits per FTE, illustrated in figure 27, are significantly higher amongst small enterprises than any other size group.¹⁵

Profits for SMEs increased between 2000 and 2001

Profits per FTE for small enterprises decreased 18.9 percent in 2000/2001¹⁶ over the previous year. This is in contrast to enterprises in the 6-9 and 10-19 FTE categories which recorded increased profits per FTE over the same period (1.5 percent and 5.3 percent respectively). For the larger businesses, profits per FTE were down; the 50-99 FTE group was the hardest hit, recording a 71.3 percent decrease. Overall, the 50-99 group recorded the lowest profit per FTE at $1,242. Although down on the previous year, at $10,852 2000/2001 profits per FTE for the 100+ FTE group were the highest among the three largest FTE categories.

Figure 27: Average Real Profit¹⁷per FTE¹⁸ by Enterprise Size

Small Businesses recorded the largest combined profits

Due to the high number of small businesses in operation, enterprises with five or fewer FTEs recorded the largest combined profit for 2000/2001. However, the average profit for these enterprises was only $31,000 compared to an average of $4.2m for enterprises employing 100 or more FTEs.

Figure 28: Total Real Profit by Enterprise Size

As illustrated in figure 29, average sales and other income per FTE increases with enterprise size.

There has been no consistent pattern in annual income

Small firms show a small decrease of 0.4 percent in annual income between 1999/2000 and 2000/2001. The only enterprises recording an increase over this period were those in the 6-9 and 100+ categories with increases of 1.4 percent and 2.9 percent respectively. Annual income for enterprises in all but the 0-5 and 100+ size categories remained below 1997/1998 levels.

Figure 29: Average Real Sales and Other Income per FTE by Enterprise Size

Large firms have the highest combined income

Total sales and other income over 2000/2001 were largest for the group of firms employing 100 or more FTEs, reflecting the size of the individual enterprises. Enterprises in this size bracket generated an average total income per firm of $102m over 2000/2001. The relatively high level of sales recorded by small enterprises reflects the large number of businesses with 5 or fewer FTEs, with each individual enterprise recording an average income level for 2000/2001 of only $241,000.

Figure 30: Total Real Sales and Other Income by Enterprise Size

It is interesting to note that, while large firms show the greatest total income (and the highest per FTE), small firms record the greatest combined profit¹⁹ (and the greatest profit per FTE). We would expect the opposite to be true if larger firms were taking advantage of economies of scale to produce at a lower cost than could be achieved by smaller firms. These figures suggest that economies of scale may not be as important as the advantages that small firms have in areas such as flexibility, speed and lower management costs.

Average wages per employee are highest for 50-99 FTE size category

Average real salaries and wages per FTE were highest for employees of those enterprises in the 50-99 FTE size group and have been since 1998/1999, a change from 1997/1998 when the highest levels were recorded by the 100+ category. In general, wages per FTE increase with the size of the firm for firms with 99 and fewer FTEs.

Figure 31: Average Real Salaries and Wages per FTE by Enterprise Size

Large firms account for close to 50% of total salaries and wages

Total salaries and wages paid to employees are greatest for all firms employing greater than 100 FTEs, accounting for 47.4 percent of all monies paid out. Firms employing 20-49 FTEs record the second highest value, accounting for 14.5 percent of all payments. Firms with 50-99 FTEs which contribute 11.6 percent follow, with similar payments made by firms employing 0-5 and 10-19 FTEs. (10.3 and 9.7 percent respectively). Firms employing 6-9 FTEs contributed only 6.5 percent.

Figure 32: Total Real Salaries and Wages by Enterprise Size

Using total value added as an alternative performance measure paints a similar picture to total sales and other income. However, the increase in average value added with enterprise size is not as pronounced as the increase in average income. Value added data are shown in figures 31 and 32.

Figure 33: Total Value Added²⁰ by Enterprise Size

Figure 34: Average Value Added per FTE by Enterprise Size

Table 5 presents statistics from the 2000/2001 financial year relating to the average performance of firms within each size group.

Table 5: Average Performance Measures by Firm Size, 2000/2001

¹²All performance statistics presented in this section have been deflated by an appropriate price index published by Statistics New Zealand. Profits and Sales and Other Income have been deflated by a four-quarter average of the Producers Price Index (output), while Salaries and Wages have been deflated using the June quarter Labour Cost Index (all labour costs). All real figures are expressed in terms of 1997 dollars.

¹³Statistics in this section are drawn from the Annual Enterprise Survey conducted by Statistics New Zealand. At all size categories, figures exclude ANZSIC division M: Government administration and defence; subdivision A01: Agriculture; K73: Finance; and some areas within the business, community, recreational and personal services industries, which include many SMEs and economically insignificant enterprises. The Annual Enterprise Survey was re-designed in 1999.

¹⁴Data for 1999/2000 and 2000/2001 years are provisional. Data for all other years are final.

¹⁵In previous editions of this report, real profit by enterprise size was reported to be much higher for small businesses. It is likely that these figures were unrepresentative of small businesses in general since they included asset holding type enterprises. These enterprises generally record zero FTEs but very large incomes. In this report, an attempt has been made to reduce bias caused by enterprises of this type by excluding those enterprises with ANZSIC classification K73: Finance. See footnote 13 for a more detailed list of exclusions.

¹⁶Dates in the format 2000/2001 refer to the financial year July 2000-June 2001.

¹⁷Operating surplus before income tax. Profit = (Total Inc. - Total Ex. + Salaries & Wages to Working Proprietors).

¹⁸Operating Surplus deflated (total) / no. of FTEs.

¹⁹Profit = (total inc. - total exp. + salaries & wages to working proprietors).

²⁰Value added is calculated as gross output minus intermediate consumption and is provided with the following caveats:

• The figures provided should only been seen as a proxy. While source data used for this feeds into the system for National Accounts from which official GDP is calculated, it has not been through the system and therefore is only provided as an indicator.
• The figures have been deflated by a generic deflator which is not output specific and are not related to the QGDP figures that are published by Statistics New Zealand.
• These data are not standard output and as such are not available in any other cross-tabulations.
• Figures expressed in terms of 1997 dollars.