Small business owners are acutely aware of the financial strain their customers are under, with rising household bills, transport costs, housing expenses, and debt repayments. This financial pressure leaves less cash for spending at local small businesses. This challenge is evident in the latest Xero Small Business Insights (XSBI) data, showing slowing sales growth across Australia, Canada, New Zealand, the UK, and the US.
In the first half of 2022, all five countries experienced double-digit sales growth as customers emerged from COVID-19 restrictions. However, with the onset of inflation and subsequent interest rate hikes by central banks, the sales landscape has changed dramatically. By March 2023, sales were down 5% year-over-year in the US and only 0.4% higher in Canada. Recent data up to June 2023 indicates slowed sales growth in Australia (6.3% y/y), New Zealand (5.9% y/y), and the UK (7.6% y/y).
When considering inflation-adjusted figures using national CPIs, Australia stands out as the only country where small businesses are selling more goods and services compared to a year ago. In contrast, businesses in the other four countries are experiencing lower sales volumes, with any growth attributed solely to price increases rather than actual sales volume increases.
In addition to slowing sales, XSBI data reveals that small businesses are facing increasing delays in payment, particularly in North America. Canada saw rising payment times starting in late 2021, followed by the US in mid-2022. As of March 2023, small businesses in Canada and the US were paid an average of 9.8 and 11.3 days late, respectively. The UK experienced an increase in late payment times to 7.9 days in June 2023. Meanwhile, Australia and New Zealand have seen relatively stable late payment times since early 2021, at 4.8 and 6.4 days, respectively, in June 2023.
For small business owners, rising late payment times strain cash flow, making it challenging to pay their own bills and predict future cash flow accurately. Uncertainty about payment timelines complicates investment and hiring decisions. Therefore, it’s crucial for small business owners to collaborate with advisors to simplify payment processes for customers, such as providing electronic payment options on invoices.
A bright spot in the latest XSBI data is the easing of wage pressures in Australia, New Zealand, and the UK. Wage growth has slowed to 3.1% y/y, 2.9% y/y, and 3.6% y/y, respectively, aligning with long-term averages and significantly lower than the record highs of 2022. This moderation means small businesses‘ wage bills aren’t increasing as rapidly as last year. It also bodes well for the inflation outlook, indicating that the wage pressure from 2022 has subsided. However, with real wages continuing to fall, household budgets remain strained, adding pressure to the sales outlook.
Running a small business in these conditions is tough, but there are steps you can take to manage low sales, ensure prompt payments, and attract staff:
Dive into the latest Xero Small Business Insights findings, including downloadable anonymized and aggregated data, at xero.com/xerosbi. The program features quarterly data releases, blogs on small business issues, and deep dives into specific topics like cash flow and technology use. Explore country-specific research for Australia, Canada, New Zealand, the UK, and the US to stay informed about the latest trends and insights.
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