Everyone’s talking AI, but Aussie small business owners are a bit lost. According to Deloitte’s The AI Edge for SMBs, commissioned by Amazon, one in three have no idea how to get started.

These are the businesses that keep the country ticking, yet when it comes to AI, plenty are hanging back, unsure whether to dive in, strap on some floaties or just watch from the sidelines. That hesitation comes with a big price tag: Deloitte says getting more small businesses using AI could pump an eye-watering $44 billion into the economy. Yep, that’s billion, with a B.

Small business is using AI, but mostly for beginner stuff

The survey of more than 1,000 business owners shows AI adoption is widespread. Two-thirds of small and medium sized businesses are using AI solutions in their business. However, most are still stuck using very simple tools.

The report says 40 per cent of these businesses are using basic applications like brainstorming, developing ideas, or drafting and reviewing emails or documents. That’s handy, but it doesn’t move the dial much on productivity or profit.

While 65 per cent of small businesses say they use AI, the report found only “5 per cent of SMBs are enabled to fully realise the potential benefits of AI”. The vast majority (41 per cent) fall into the ‘basic’ maturity category, while 54 per cent sit in the middle.

The gap between dipping a toe in and actually using AI meaningfully is still huge.

The productivity problem AI could fix

Small business owners have been feeling the productivity pinch for years, and Deloitte’s numbers confirm the scale of the problem. On average, small businesses produce $30,000 less in labour productivity  per worker than large businesses. Medium-sized businesses aren’t far behind, trailing by $19,000 per worker.

The research shows that AI could help close this gap quickly. If just one-in-ten basic-level small businesses stepped up to an intermediate level, Deloitte estimates it would add $13.4 billion in GDP annually. And if another ten per cent climbed from intermediate to enabled, the total economic impact hits that monster $44 billion figure.

At a business level, the benefits of AI are immense. Moving from basic to intermediate adoption boosts profitability by 45 per cent, while jumping from intermediate to enabled, lifts profits by 111 per cent.

To put that into real-world terms: the average small business profit is “$106,000”, and Deloitte says AI maturity improvements could add another $48,000. A medium business, making an average $1.4 million profit, could see an uplift of around $630,000.

Retail is racing ahead

If you want an Aussie industry living and breathing AI already, look at retail. It’s one of the toughest battlegrounds for competition: thin margins, rising operating costs, customers expecting everything instantly, and new online players popping up daily.

Yet according to the report, “a retail SMB is 22 per cent more likely to have adopted an AI solution than a business in another industry”, and they’re two to three times more likely to be using advanced agentic AI.

Deloitte says retail businesses with intermediate AI usage are twice as profitable as those sitting at the basic level. In other industries, that uplift is only around 12 per cent, meaning retail feels the benefits more directly and more dramatically than most.

Retailers have jumped in quickly because many of the tools they already use, such as eCommerce platforms and marketing systems, have rolled out AI features, including personalised recommendations and automated campaigns. AI integration in retail is often ‘low-friction… with low or zero upfront cost’, which makes adoption a no-brainer.

Clueless: The number one barrier

Even with all the promise, many business owners simply feel overwhelmed. Deloitte reports that “33 per cent of SMBs don’t know how to get started”, especially micro and small operators, where the rate rises to 37 per cent and 36 per cent respectively.

Who can blame them? The report points out that there are more than 10,000 distinct AI tools on the market. So it’s almost impossible for a time-poor business owner to know which one is right.

Smaller businesses also face the biggest knowledge gaps. Deloitte found that a third of small business owners lacked awareness of AI and how it can be used in business. And many owners worry about whether the tools are valuable, safe or compliant,  especially when concerns about regulatory, legal, ethical, compliance and other risks are widespread.

Then comes the skills shortage. According to the report, “more than half of the small business workforce have basic or novice levels of familiarity with AI”, and only “10 per cent of workforces have advanced AI skill levels”. That makes it tough to adopt AI confidently, let alone strategically.

Even when business owners WANT to implement AI properly, many hit a wall when they try to integrate it. Deloitte found that technology implementation challenges are a top-five issue across industries.

So, the appetite for AI is there, but the runway isn’t.

The fix

To close the national productivity gap, Deloitte says Australia needs targeted support for small businesses, including an investment incentive. Their proposed solution is a one-year, “$1 billion AI Investment Boost” offering an additional 50 per cent tax deduction to help small businesses invest in tech, training, strategy and system upgrades.

The report argues this incentive could unlock $2 billion in investment and give businesses enough breathing room to build confidence and capability.

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