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Xero’s Small Business Insights shares key small business findings



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By Loren Webb

The accounting app Xero share their Small Business Insights with us to shed light on what small businesses should be aware of, which is now made especially relevant with the federal budget announcement later today.

The anonymous and aggregated data is collected monthly from hundreds of thousands of Xero’s Australian subscribers through the Xero platform. The data relies on Xero subscribers that meet the criteria for each metric – Getting Paid, Cash Flow, Hiring, Overseas Trading and Cloud Adoption.

Xero’s Small Business Insights provide us with many useful findings relevant to small businesses right now, with the main ones listed below:

  • Tax cuts: When small businesses receive a tax cut, about half of the money goes toward hiring employees, raising wages or boosting investment in the business – the other half is retained as cash in the business.
  • Cash flow: On average, 46% of small businesses were cash flow negative in 2018, meaning they had more money going out the door than coming in. Our customers tell us poor cash flow is the number one reason businesses go under.
  • Late payments: Small businesses were paid almost a week late in 2018: It took an average of 36 days to be paid on a 30-day invoice. When payments arrive late, cash flow inevitably suffers.The sectors that endure the latest payments include transport and warehousing (10 days late as of the most recent month’s data); rental hiring and real estate (6 days late). Small businesses here often lack the resources to pursue late payments from much bigger customers in the sector.
  • Digital: Businesses on Xero using at least one app saw annual employment growth averaging 4.7%, or nearly double that of firms using no apps.The more apps used, the greater the revenue growth seen; turnover and app usage tend to rise together.
  • Lending: Australia’s small businesses say they would borrow as much as $80 billion over the next 12 months, if they could get the funding. Instead, many are struggling to access capital, in large part due to the complexity of the loan process. Small businesses said they would use the money to hire an average of six extra staff in the next year (from mid-2018 survey).

Trent Innes, Australian MD of the global small business platform, has said that “simplifying the application process while creating incentives for banks to lend to small businesses without having to secure the loan against their home is critical. Our research showsthat access to capital is the greatest pain point for one in five small business owners, hampering their aspirations for long-term growth.”

Trent Innes goes on to highlight why these analytics are so important, what information small businesses should be taking on board and some particularly relevant takeaways with consideration of the federal budget announcement later today.

Why are these analytics so important to small businesses?

“Xero Small Business Insights offers a near real-time snapshot of the small business sector’s health, and paints a picture of business conditions that is more accurate than most private surveys. It tells us how small businesses performed last year, in recent months, what decisions they were making and what challenges they faced.

Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman, told a Sydney audience in October that she thought our data helped spur the government to take action on payment times. These numbers are important because, as Mrs. Carnell said, ““data gives us the grunt to get policy changed.”” We agree, and we’re proud to help drive a transformation for small business in Australia.”

What do you think small businesses should be most aware of right now?

“Our customers tell us that cash flow is the number one reason businesses go under.

Xero’s data shows that, on average, almost half of small businesses in Australia were cash flow negative last year – meaning they had more money going out the door than coming in.

This is likely driven by many different factors, including late payments and poor access to capital. For example, we know that in 2018 small businesses across the country were paid almost a week late on average on 30-day invoices.

This suggests that an improvement in payment times would make a bigger, long-term difference for the sector than business tax cuts. Permanently fixing payment times would be a huge win for small business.

The biggest federal budget win for small businesses right now would be for the government to fix payment times once and for all. An improvement in payment times would make a bigger impact for the sector than business tax cuts.”

3) Based on the recent results, what should small businesses be doing to ensure success?

“It’s clear from the data that digital connectivity is far from a ‘nice to have’ and has become a must-have for small business survival. For example, our data suggests that the more Xero-integrated apps our small business customers use, the greater their revenue growth tends to be; turnover and app usage tend to rise together.

On top of that, our small business customers in mature NBN regions grew employment by one-third more than peers in non-NBN regions. And they grew revenue by almost two-thirds more than peers in non-NBN regions.

The Australian Government is helping drive the digitisation of small businesses, and our numbers show how critical it is that small businesses get help in making this digital transition. Whether this is through their accountants and bookkeepers, platforms such as Xero, or other advisors, going digital will not only help small businesses meet their compliance requirements but will help boost their growth.”

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