The spring has brought some welcome news for small business owners, with an uplift in positive cash flow particularly in some of our holiday hotspots, boding well for the summer.

The latest XSBI data revealed that 54 percent of SMEs in New Zealand were cash flow positive in September, an encouraging nine percent increase on August and sitting within the top three best performing months for 2018. It’s still well below what businesses would like and need, but it gives a promising outlook for the rest of the year.

The small businesses sporting the biggest smiles on their faces were based in Nelson, Bay of Plenty and Northland, which performed the best in terms of cash flow for September, with 57 – 59 percent being cashflow positive across the three regions.

Speak to any small business owner and they’ll tell you that cashflow is the most important factor for analysing their business success. It provides the foundation of all business, with positive cash flow leading to increased performance and profitability.

The metrics used to develop the cash flow insights are based on collated data from hundreds of thousands of small businesses that process their invoices through Xero. In the case of cash flow, it looks at the percentage of businesses that are cash flow positive or negative, and how that number varied from month-to-month over the past year.

Thorough planning and management are key to ensuring that a small business is prepared for any unpleasant surprises that lie ahead. Cash flow forecasting predicts how much money will move in and out of a business bank account, and when this will happen. This allows businesses to plan, have a ‘plan b’ in case an obstacle appears, and spot any gaps which can be addressed in good time.

Of course, there can be hiccups along the way, which put strain on healthy cash flow, such as payment times. As economist Cameron Bagrie says, there is a strong synergy between cash flow and getting paid, with cash flow being affected when invoice payment times are delayed and vice versa.

When looking at the industry data for September, there’s promising news for the construction sector which, after seeing a 9.37 per cent decline in August, has risen again with 56.64 percent of small businesses cash flow positive. The biggest leap in September was within the electricity, gas, water and waste services sector, which increased from 40.1  percent of small business being cash flow positive to 60.4 percent – the sector’s strongest month for 2018.

September was a good month overall for small business cash flow. Apart from the teaching and education and training sector, which we expected to dip slightly following talent shortages and teacher strikes, we didn’t witness any other decreases from any of the remaining industries within our data pool.

With the right advice and guidance, small businesses across the country can see improvements in their cashflow results. From mid October to early December we are touring around New Zealand to provide support to accountants, bookkeepers and small business owners, through Xero Roadshows. The aim is to help increase productivity and improve their business success.  

Some of the tools out there that can help with cash flow include finance apps that provide unsecured fast access to funds to keep your clients in the black such as Spotcap. It’s also useful to remember that tools such as invoice reminders in Xero can do your debtor chasing for you and cash flow forecasting apps such as Float allow you to better understand your  current and future cash position.

From a regulatory perspective, the proposed introduction of e-invoicing will be a major step for small businesses in New Zealand and is expected to benefit cash flow and vastly improve invoice timing. The use of e-invoicing will give SME owners the chance to increase productivity and focus on business goals, rather than chasing payments. The complete eradication of manually handling the bills will make the process faster, easier, more accurate and reduce the chance of invoice payment delays.   

Historically, cashflow has been high in October, November and December and given that small businesses across the country are just 0.23 percent down on September 2017, we should expect some good results again as we reach the end of the year.

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

Download PDF