Wellington — 21 July, 2022 — Xero, the global small business platform, today announced the release of Crunch: Cash flow challenges facing small businesses, a Xero Small Business Insights special report which found cash flow challenges are undermining the growth and operations of at least 9 in 10 small businesses.
In New Zealand, the average small business struggles with negative cash flow for a third of the year, with one in six (17%) facing cash flow crunches – where monthly expenses are above revenues – for more than six months each year. This is an indication of chronic cash flow stress.
Prepared by Accenture, with the support of Xero, the report found 95 percent of Kiwi small businesses experienced at least one month of negative cash flow in 2021 – the most of the three regions analyzed (New Zealand, Australia, United Kingdom).
Xero Director of Business Growth Charlie Nicholls said cash flow challenges are a major barrier for small business success – something especially damaging during ongoing inflationary pressure.
“The rising cost of living and inflation is starting to impact consumer behaviour, translating into less money available to spend with local small businesses,” says Nicholls.
“It’s increasingly important Kiwi small business owners ensure their customers pay on time as a key step towards improving cash flow.
“That sort of volatility can introduce huge amounts of uncertainty to how owners invest in sustaining and growing a small business, directly compromising their livelihoods and those of many in the community.
“The sooner we take deliberate action on stabilizing cash flow for the New Zealand small business community, the better-placed they and our economy will be to reach their full potential.”
Cash flow challenges facing small businesses
The report analyzed comprehensive inflow and outflow data from more than 200,000 businesses across Australia, New Zealand and the United Kingdom to understand the extent of cash flow stress experienced by small businesses.
Rachael Powell, Chief Customer Officer, Xero, said: “Months of negative cash flow can leave small business owners struggling to pay essential costs like wages and rent. This, in turn, compromises the ability of small businesses to stay afloat, hire, and grow.
“Ensuring customers pay on time is a key step towards improving cash flow. Pandemic-led changes in business models – such as the adoption of food delivery models in hospitality or e-commerce sales for retail – can also help improve cash inflows in the longer-term.”
The report’s findings also suggest small businesses can insulate themselves from cash flow crunches with the help of their accountants and bookkeepers – using their financial data to predict crunch periods and build up cash buffers ahead of time.
“The latest Xero Small Business Insights report reveals just how persistent and systemic these cash flow challenges are for small businesses on a global scale. For many of these businesses that regularly experience cash flow 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 cash flow trouble. By working closely with their accountants and bookkeepers, they can beat the crunch by analyzing their finances, anticipating periods when cash flow often dips into the red, and adjusting how they operate to improve their monthly cash flow position,” said Powell.
The report, including the insights and analysis contained within it, was prepared by Accenture with the support of Xero, using Xero Small Business Insights data, publicly available data and Accenture estimates for the purpose of informing and developing policies to support small businesses.
It was released during Xerocon London, one of the world’s premier events for cloud accounting leaders, where more than 2,000 delegates from the accounting, bookkeeping and app partner community have gathered to hear the latest from industry leaders and updates from Xero.
A follow-up report investigating the cash flow “red flags” that can warn small businesses of impending cash flow challenges will be released in the coming months.
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