Frictionless economy for small businesses by 2023

Global small-business platform Xero is predicting a frictionless economy by 2023 in which businesses can operate more efficiently and with fewer barriers.

Trent Innes, Managing Director, Xero Australia, said, “Today’s small-business ecosystem is still filled with friction – and by that I mean processes that are unnecessarily inefficient and the prolific use of analogue processes that digital solutions can simplify. For small businesses to thrive in the future, we need to see these barriers removed.”

Short-term focus, modest growth aspirations

The vision for a frictionless small-business economy comes as new Xero data confirmed that small-business owners are generally focused on the short term, with almost three-quarters only planning up to six-months ahead. This includes almost one in three that get by with just a day-to-day focus. Only six per cent of small businesses surveyed have a five-year plan.

The research also reveals that fewer than two in five are focused on growing their business long-term and close to one-in-three are only focused on maintaining the current level of business.

“The data, while alarming, is unsurprising. It shows that by and large, Australian small businesses don’t have a long-range view when it comes to business planning. Just as employees shouldn’t live paycheck to paycheck, small businesses should be thinking long term to plan for change and growth,” Innes said.

Xero’s Small Business Insights data routinely demonstrates that only 45-55 per cent of small businesses in Australia are cashflow positive at any time.

In April 2018, only 52 per cent of Australian small businesses were cashflow positive. Innes said the pressure forces businesses into short-termism and rather than spending time on a five-year plan, small businesses are having to chase payments to ensure they can pay bills.

“Small-business owners are focused on the day-to-day as they have immediate outgoings. As we ring in the new financial year, we urge small businesses to use this opportunity to start thinking about future-proofing their business for long term success,” he said.

What does small-business success look like in 2023?

To help small-business owners break out of short-termism and future-proof for long-term success, Xero has released its vision for what it predicts the small-business landscape will look like in 2023:

  • Frictionless economy by 2023 – The introduction of Single Touch Payroll (STP) is set to remove a lot of friction in the way businesses report employee information including salary, wages and superannuation. Over the next five years, Innes expects more government initiatives to enable businesses to work smarter. “This means no more sending letters, files, forms and faxes to the ATO, it should all become increasingly digital.”
  • Digital systems of record to become “must-haves” – Over the past five years, small businesses have embraced technology and the government has rapidly replatformed so that it can better support digital small business. As we head towards 2023, having a digital system of record will increasingly become compulsory, rather than a “nice-to-have”, which means keeping financial records in spreadsheets and shoeboxes may no longer be acceptable in future.
  • E-invoicing to become simpler and commonplace – The federal government has adopted an industry-wide framework for digital invoicing, and Innes expects e-invoicing to see rapid uptake in the next five years, leading to savings in time and money for business owners that get onboard sooner rather than later.
  • Payment times reduced to under 30 days – According to Xero’s Small Business Insights data, payment times on 30-day invoices have decreased by three full days over the past three years (41 days average in 2015, 38 days average in 2018). With e-invoicing, the possibility of sub-14 day trading terms becomes more and more likely.
  • Gains from increased cashflow – Reduced payment times and a frictionless economy should translate into an uptick in cashflow positivity, and profitability, for many small businesses. This will enable business owners to hire more confidently, rely less on casual employment and create more jobs.

“Based on macro trends … the future of small business is one built on technology. The digitisation of business is happening at all levels and, increasingly, it’s being mandated by government. This new financial year, we urge small businesses to consider these sweeping changes and start putting plans in place to future-proof their business for the long-term,” Innes said.