Technology spend key to small businesses surviving the pandemic

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Small business platform Xero’s latest report Picking up the pace: trends in small business technology adoption and use reveals that higher technology spend was linked to greater resiliency throughout the pandemic for small businesses, with more digitalised Australian small businesses having better productivity, sales, jobs and payment outcomes.

The report, produced in partnership with Accenture, draws data from hundreds of thousands of Xero subscribers across Australia, New Zealand and the UK to create new insights on the trends and benefits of small business digitalisation.

While Australian spending on digital services (such as software and apps) was already increasing before the pandemic, rising 70 per cent between 2009 to 2019, the pandemic drove this to new levels, with ICT expenditure up 13 per cent in Australia between March 2020 and June 2021.

Other markets, however, saw a more significant jump; 25 per cent in New Zealand, and 20 per cent in the UK. Overall, Australian small businesses are less digitalised in terms of ICT expenditure and app usage intensity.

“The pandemic has spurred one of the biggest shifts in recent history when it comes to small business digitalisation,” Joseph Lyons, Managing Director Australia and Asia at Xero, said. “With Xero’s latest report, we have insight into the scope of this change for Australian small businesses – and a clearer idea of what may help on the path to recovery.”

The report also highlights a clear link between small-business digitalisation and improved performance throughout the pandemic, with Australian small businesses in the top quartile (25 per cent) of ICT spend, achieving AU$34,800 more in sales throughout 2020 than those who spent the least. And greater app usage was also linked to increased productivity across all countries. The top 25 per cent of app users were more productive than those who didn’t use any apps in 2019.

“Increased small business technology adoption is clearly a positive for the individual small business,” Louise Southall, Xero Economist,” said. “In addition, the impact on productivity growth means it is also a positive for the national economy as we rebuild in 2022.”

Despite this boost in digitalisation, however, some small businesses have been slow to embrace technology in their business operations. The report noted that professional services spend almost five times as much (4.9 per cent) on technology as those in hospitality (1.1 per cent). This was followed by other services (2.4 per cent), real estate (2 per cent), retail (1.9 per cent), construction (1.7 per cent), and manufacturing (1.6 per cent).

Meanwhile, sole traders spent a higher proportion of expenses on ICT (5.1 per cent) when compared to larger businesses, almost four times greater than businesses with more than five employees (1.2 per cent). Small businesses with one to five employees spent 2 per cent of total expenditure on ICT each month.

“From these findings, it’s clear how powerful technology can be for small businesses,” Lyons said. “Tremendous change can happen when a business adopts new tools and systems and uses them to a high degree, as seen with app usage. By overcoming the barriers to adoption, there are huge possibilities – ones that can influence not only the flow of operations, but greater resilience. With an economic recovery underway, it’s important small businesses are set up for success, and digitalisation plays a key part.”