Ask any New Zealand small business owner what keeps them up at night and cash flow will likely be in the mix. Cash flow is a critical indicator of how a business is coping and the timely payment of accounts can make or break a small business.

Xero Small Business Insights looks at the percentage of businesses that are cash flow positive or negative, and how that number varied from month-to-month in the last year. The metrics are based on anonymised, aggregated data from hundreds of thousands of small businesses that use our small business platform in New Zealand.

The initial findings highlight that cash flow is one of the great variables experienced by small businesses. The first set of data from March 2017 to March 2018 shows the percentage of cash flow positive small businesses were highest during the following months: March 2017 (55.1%), July (54.6%), Sept (54.2%), Nov (55.6%), Dec (55.8%) and March 2018 (56.4%).

During the 13-month period, January 2018 was the weakest month with only 38.6 percent of small businesses being  cash flow positive, a likely reflection of delays in invoice payments over the summer holidays. Other months where cash flow weakened were May (41.1%) and August 2017 (41.2%).

What the data highlights is the great degree of variability that small businesses experience throughout the year. These peaks and troughs can be symptomatic of the seasonal nature of many small businesses, but 2017 also saw great variability at a ‘macro level’ in terms of the economy.

While the data shows a state of flux with the percentage of small businesses dipping in and out of positive cash flow, it’s a similar story for small businesses in Australia and the UK where Xero also provides the Xero Small Business Insights analysis. And in some ways, Kiwi small businesses fair better where cash flow is concerned.

Data shows that while New Zealand had several months where more than half of small businesses had positive cash flows, the strongest cash flow months in the UK were only 51.7% (October) and 50% (November). The cash flow challenge in the UK has the Government’s attention on addressing late payments - particularly where small firms are at the mercy of large ones.

While the variability of cash flow throughout the year might be greater for small businesses than large, what’s key is how these firms ‘even out’ the ups and downs. As Lachlan Heussler, Managing Director of Spotcap Australia and NZ points out:

“Cash flow is the lifeblood of your business, ringing true with the old saying ‘cash is

King’. It is not uncommon for a business to run into cash flow problems, but it is important to have a plan when it does. Hiring a new staff member, securing a large contract, or purchasing better equipment can all boost a business’ growth, but can also diminish cash flow quickly.”

“The key is to design a sustainable cash flow balance that allows you to manage your growth effectively. A short-term business loan or invoice financing can provide the financial flexibility you need in a fast, simple, and effective manner. Even better, an unsecured business loan means you don’t need to put your personal assets on the line. With a 24-hour turnaround period, you can capitalise on business opportunities instantly without burdening your cash needs.”

This article was prepared by Xero using Xero Small Business Insights data, for the purpose of informing and developing policies to promote small business in New Zealand. It contains general information only and should not be taken as taxation, financial, investment or legal advice. Xero recommends that readers always obtain specific and detailed professional advice about any business decisions.

Download the Xero Small Business Insights summary here

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