The latest Xero Small Business Insights reveal sthat cashflow challenges are undermining the growth and operations of at least nine in 10 small businesses.
In its report Crunch: Cashflow challenges facing small businesses, Xero found that the average Australian small business struggles with negative cashflow for more than a third of the year, with one in five seeing that their monthly expenses already exceed their revenues for more than six months each year. In addition, 92 per cent of small businesses experienced at least one month of negative cashflow in 2021.
“Months of negative cashflow can leave small-business owners struggling to pay essential costs like wages and rent,” Rachael Powell, Chief Customer Officer at Xero, said. “This, in turn, compromises the ability of small businesses to stay afloat, hire, and grow.”
And Xero Managing Director for Australia and Asia Joseph Lyons said that while cashflow performance has improved since 2019, small businesses are still facing challenges.
“The fact that cashflow improved during the pandemic, despite spikes in cashflow crunches at the start of 2020, shouldn’t be a cause for celebration,”Lyons said. “While government schemes like JobKeeper and JobSaver helped buoy cashflow back relative to pre-pandemic levels, the apparent improvements also were the result of businesses drastically slashing expenses – often because they were forced to reduce trading hours and typically at the expense of investment, employee retention, and any cash buffers the business might have once held.
“Cashflow doesn’t give a full picture of small-business health, but it does offer a strong indicator of how much pressure small businesses are facing, and we’ve seen little to no lasting improvement for Australian small businesses even post-pandemic,” Lyons added. “Its clear we must do more to reduce the crunch for these small businesses.”
The report noted that ensuring customers pay on time is a key step towards improving cashflow. Pandemic-led changes in business models – such as the adoption of food delivery models in hospitality or e-commerce sales for retail – are seen to also help improve cash inflows in the longer term. It also recommended that small businesses tap the services of their accountants and bookkeepers so they can be insulated from cashflow crunches.
“The latest Xero Small Business Insights report reveals just how persistent and systemic these cashflow challenges are for small businesses on a global scale,” Powell said. “For many of these businesses that regularly experience cashflow crunches, prompt invoice payments and more support in budget planning could unlock huge growth opportunities.
“Small-business owners don’t have to sit back and accept regular cashflow trouble. By working closely with their accountants and bookkeepers, they can beat the crunch by analysing their finances, anticipating periods when cashflow often dips into the red, and adjusting how they operate to improve their monthly cashflow position,” Powell concluded.
