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Jobs growth and reduced payment delays push Xero’s index to a record.
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Small business ‘boosted by EOFY debt paydown’
29 July 2022
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Xero’s Small-Business Index rose 29 points to reach a record high of 156 in June thanks to a strong month for jobs and record-low time-to-be-paid figure.
However, timing greatly influenced the result, Xero cautioned, as businesses moved to pay expenses before the end of the financial year.
The wait for businesses to be paid dropped by 3.5 days in June to 20.1 days, with late payments dropping to just 4.7 days – the lowest since Xero’s records began.
Managing director Australia and Asia of Xero, Joseph Lyons, said it was pleasing to see payment times drop.
“The time it takes for small businesses to get paid can massively impact cash flow, so it’s encouraging to see a drop in payment times,” said Mr Lyons.
“Although this is a seasonal impact, there is still reason to be cautiously optimistic – after all, healthier cash flow equals stronger small business performance.”
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Xero economist Louise Southall said that the pattern was familiar from previous years.
“Caution should be taken interpreting this result, though, as such a sharp fall is usual for the end of the financial year and is often revised in subsequent months,” said Ms Southhall.
Xero’s research found small businesses had the strongest jobs result in June for 2022, increasing 2.0 per cent year-on-year after only a 0.2 per cent year-on-year rise in May.
The two strongest performing industries were administrative services at 6.9 per cent year-on-year and professional services at 4.4 per cent.
Ms Southhall said the result was great for small businesses.
“The jobs result is hugely positive and fantastic to see a rebuilding in recent months after a soft start to 2022,” said Ms Southhall.
Xero research also found that sales increased by 10.6 per cent year-on-year through June despite inflation and cost-of-living pressures.
Sales growth was strongest for administrative services, with a 15.9 per cent year-on-year increase.
Xero warned that the double-digit surge failed to take into account the impacts of price and volume.
When these were factored in using June quarter CPI the volume of sales rose by 4.5 per cent year-on-year, although this was still above the June 2021 figure and better than outcomes in the UK and New Zealand, where sales shrank.
Ms Southhall said the results reflected the toughness of Australian small businesses.
“The sales results show that Australian small businesses are continuing to sell more goods and services than they did a year ago, despite customers facing cost of living pressures,” said Ms Southhall.
“It’s a testament to how our small business economy has continued to show resilience through the current inflation crisis.”
Xero’s research also showed that wage growth during June slowed to 3.4 per cent year-on-year, down from 4.2 per cent in April.
The industry that recorded the largest wage gains was construction with 4.3 per cent growth while healthcare and social assistance had the smallest, with 2.4 per cent.
Xero’s Small-Business Index is an unweighted composite figure showing improvements or declines in the performance of the small-business economy relative to the average month.
The overall index comprises four key measures of small business such as sales, time to be paid, jobs and wages.
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