Achieving that sale getting harder for small businesses

Small business owners are well aware how hard it is for their customers right now, who are trying to stretch their budgets to cover the rising cost of household bills, transport, housing and debt repayments. This isn’t leaving a lot of cash to spend in their local small business. This difficult task of making a sale is showing up clearly in the latest Xero Small Business Insights (XSBI) data, with sales growth slowing across all Australia, Canada, New Zealand, the UK and the US. 

All five countries averaged double digit sales growth in the first half of 2022, as customers unleashed after two years of on/off COVID-19 restrictions. Then inflation arrived and with it came multiple interest rate increases from central banks desperate to put the inflation genie back in the bottle. Fast-forward to 2023 and small businesses are finding it much harder to make a sale. During March, sales were 5% lower than they were a year ago in the US and only 0.4% higher in Canada. The more recent data (to June) that we have for Australia, New Zealand and the UK showed sales growth also slowed in these countries – at 6.3% y/y, 5.9% y/y and 7.6% y/y respectively. 

In fact, using three-monthly averages to smooth out monthly volatility, once you take into account price movements over the past year (by using national CPIs) Australia is the only country where small businesses are actually selling more goods and services than they were a year ago. The average small business in the other four countries is selling less items and only growing their sales due to price rises rather than actually moving more items.  

Small business are also being paid increasingly late

As if slowing sales weren’t already enough to deal with, the latest XSBI data also shows small businesses are being increasingly paid late – especially in North America. 

Canada was the first country to start to see payment times move higher, in late 2021, followed by the US in mid-2022. Small businesses in these two countries were paid an average of 9.8 and 11.3 days late in March 2023. In May and June the UK had an uptick in late payment times to be 7.9 days in June 2023. In contrast, Australia and New Zealand late payment times have been broadly unchanged since early 2021 and were 4.8 and 6.4 days respectively in June 2023. 

For small business owners a rise in late payment times puts pressure on cash flow and makes it hard to both pay their own bills and accurately predict future cash flow. Being unsure about how long you need to wait to be paid makes it difficult to make investment or hiring decisions with confidence. This is why it is critically important for small business owners to work with their advisors on how to make it as easy as possible for customers to pay, such as providing electronic payment methods on invoices. 

Some positive news for small businesses as wages pressures ease

The main piece of positive news in the latest XSBI data was that wage pressures – which are tracked in Australia, New Zealand and the UK – have started to ease. Wages rose 3.1% y/y, 2.9% y/y and 3.6% y/y – these are around the long term averages for these series and well down on the record highs seen in 2022. 

For small businesses this means their wages bills aren’t rising as quickly as they were last year. These wage results are also a positive for the inflation outlook and suggest that the wage rise pressure that had been building in 2022 has dissipated. It is, however, less positive for the sales outlook with real wages continuing to fall. This puts more pressure on already stretched household budgets. 

How small businesses can navigate challenging conditions

For many, it is a difficult time to be running a small business, but there are some simple steps you can take to manage low sales, get paid quickly and attract staff.

• Reward your regular, loyal customers with special discounts (e.g. 10th purchase free) or daily specials. This is a win-win for both you and your customers. 
• When issuing invoices make sure it is really easy for your customers to pay you by offering multiple options. Electronic payment methods in particular can speed payments up.
• Don’t just think about wages when it comes to rewarding and retaining staff – talk to them about other ways that you remunerate them such as extra leave or health care benefits.

Take a deep dive into XSBI data and research

You can easily explore all the latest Xero Small Business Insights findings, including downloading the anonymised and aggregated data, at xero.com/xerosbi. The program includes not just the three-monthly release of data but also regular blogs about small business issues and deep dives into specific topics such as cash flow or technology use. Or if your interest lies in what is happening in a particular country then you can check out the specific research we have on Australia, Canada, New Zealand, the United Kingdom and the United States.