Artificial intelligence adoption is accelerating among small businesses in New South Wales, while a growing share of operators are running very small businesses and reaching customers beyond their local communities, according to new research from the NSW Small Business Commission.
The Commission’s new NSW Small Business: A Story of Diversity and Dynamism report examines changes in business size, technology use, customer reach and the motivations behind business ownership.
NSW is home to around 893,000 small businesses, representing approximately 97 per cent of all businesses in the state. They employ close to 1.7 million people, or around 40 per cent of the state’s private-sector workforce.
Micro-Businesses Continue to Grow
The report found 63 per cent of NSW small businesses now operate with fewer than four employees, with this segment growing at roughly twice the rate of businesses overall.
Official Commission data also shows the proportion of NSW small businesses with no employees increased from 57 per cent in 2021 to 63 per cent in 2025, reflecting a broader shift towards sole traders and very small operating models.
The trend is particularly relevant to industries such as professional services, construction and digitally enabled work, where businesses can increasingly operate with small teams or individual operators.
Nearly Half of Small Businesses Using AI
Technology adoption is also becoming more widespread.
According to the new research, 47 per cent of NSW small businesses are using artificial intelligence tools to improve productivity.
AI use is not limited to technology-focused companies. Around 40 per cent of businesses in trades, retail and hospitality reported using AI tools.
Applications can range from administration and customer communication to marketing, content generation, scheduling and other routine business processes.
The figures suggest AI is moving beyond early adoption among larger organisations and becoming part of day-to-day operations for smaller businesses.
More Businesses Selling Beyond Their Local Area
The research found 57 per cent of small businesses now serve customers outside their immediate local area.
This includes:
- 23 per cent serving customers elsewhere in NSW
- 21 per cent operating across Australia
- 3 per cent serving international customers
Digital platforms, remote service delivery and online commerce have made it easier for smaller operators to reach markets beyond their traditional geographic base.
Independence Remains a Major Motivation
Business ownership is not driven solely by growth or income, according to the research.
Almost half of respondents — 49 per cent — identified independence as a primary motivation for operating their own business.
The research also found regional business owners were around three times more likely than Sydney-based owners to identify their contribution to the local community as an important motivation.
The NSW Small Business Commission said the findings reflect a sector increasingly characterised by smaller operating models, greater use of technology and more diverse reasons for entering business ownership.
Small Business Remains a Major Part of NSW Economy
Small businesses remain concentrated across several major industries.
Latest NSW Small Business Commission figures show construction represents 17.3 per cent of small businesses, followed by professional, scientific and technical services at 14.1 per cent, and rental, hiring and real estate services at 11.6 per cent.
Transport, postal and warehousing businesses account for another 8.2 per cent, while health care and social assistance represent 7.6 per cent.
The latest research indicates that while NSW’s small business sector remains economically significant, its structure is continuing to shift towards smaller businesses that are increasingly digital, specialised and able to operate across wider markets.
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