A new report from Xero entitled Money Matters: navigating the impact of economic conditions on the cashflow of Australian small and medium-sized businesses paints a less than optimistic picture on the situation facing our small-business sector.
The report reveals that 60 per cent of businesses surveyed have experienced cashflow issues, with 14 per cent experiencing significant challenges, and 29 per cent also said that they check their cashflow position daily to ensure they stay on track.
The situation has become dire enough that according to the report, 34 per cent of small-business owners say they have been unable to pay themselves. Because of this, 27 per cent of small-business owners had to use their personal savings to keep their businesses afloat.
“Cashflow is a major challenge for many small businesses,” Leigh O’Neill, Executive General Manager of Money at Xero, said. “Our research uncovers some troubling signs about how Australian small-business owners are coping in the face of today’s volatile and uncertain economy, and the sacrifices they are making to keep their businesses going and employees paid.”
Small businesses also called out inflation and its impact on cashflow as a major hurdle, with 57 per cent saying it impacted their cashflow management over the past six months. Late payments have also been cited as a factor for their cashflow woes, with 26 per cent citing it as a reason they are struggling to pay their bills on time. As a result, small-business owners resort to negotiating payment terms with suppliers (42 per cent) as they experienced stalled revenue (40 per cent).
The report also found that only 38 per cent of business owners are using accounting software to track cashflow, even though they employ technologies such as reminders and scheduling payments (36 per cent), direct debits (36 per cent), and eInvoicing (33 per cent), It is noted that construction and trade businesses embrace the least number of tech-savvy measures like cashflow forecasting tools.
For support during periods of tighter cashflow, small businesses are most likely to speak to an accountant or bookkeeper (24 per cent and 18 per cent respectively), while just under a quarter (24 per cent) will focus on chasing overdue payments.
“Business owners must constantly monitor cashflow in order to manage it,” O’Neill said. “Planning and forecasting tools are a great way to identify cash shortages and consider all options, whether that’s drawing down on a line of credit or increasing your prices. Giving customers flexible payment options or automating payment processing can also ease cashflow pressures.”
When asked about the emotional and physical impacts of cashflow management, business owners report feeling stress (57 per cent), anxiety (50 per cent) and having trouble sleeping (48 per cent) over the last 12 months.
Previous research from Xero conducted between November 2022 to February 2023 found the overall wellbeing of Australian small-business owners was below that of the general population and Australia had the second-lowest overall wellbeing of the seven countries surveyed.
“The stress of managing cashflow is having a detrimental impact on small-business owners, affecting their livelihoods and happiness. That’s why it’s never been more important to plan, forecast, and have a strong contingency plan in place to weather the storm and to support their positive wellbeing,” O’Neill concluded.
