When we decided to create Small Business Insights in mid-2017, we did it with a single purpose in mind: to tell stories no one else could tell about Australia’s small businesses. These businesses are frequently called the engine room of the economy. And with small businesses employing almost half of all Australian workers, and generating one-fifth of gross domestic product, who could disagree?
Despite this recognition, small businesses labor under conditions that make being an entrepreneur stressful. For years, many big businesses have exploited the power imbalance with their small suppliers, often paying them well past the agreed due date. For the small business, there was often little recourse. Squeal too loudly, and a big customer might just switch to another small supplier.
At Xero, we heard about this dynamic again and again. With 500,000 small businesses, the complaint was amplified enormously. So we resolved to help fix the problem. Early efforts included a Xero campaign to raise corporate and government awareness about the cash flow gap — the difference between when a business gets paid and when its own bills come due. Too often small businesses were pressured to pay their bills on time by larger players, while the bigger counterpart felt no such compunction.
Awareness of the cash flow gap grew, helped by a campaign from the Office of the Australian Small Business and Family Enterprise Ombudsman to get businesses paid on time. In July, many Australian big businesses pledged to pay small ones on time. And the federal government has set an admirable standard, paying 96 percent of small businesses on time. Things were moving in the right direction in mid-2017, but we wondered at Xero if there was more we could do to help our customers.
We committed to sharing observations through Xero Small Business Insights, based on anonymised, aggregated data drawn from hundreds of thousands of our subscribers. It was our hope that, with this information in hand, policymakers and large enterprises could make more informed decisions that benefitted the small business economy.
And what has Small Business Insights shown? Small businesses around the country saw improvement in 2017 across key metrics, including a 7.8 percent uptick in employment, a 3.61 percentage point increase in number of cash-flow positive businesses, and a 2.27 percent drop in payment times for invoices with 30-day payment terms; equivalent to a full working day for most small businesses.
We’re proud to be supported by KPMG Enterprise in our continuing efforts. And we’re honoured by the positive feedback we’ve received from quarters including Small Business and Family Enterprise Ombudsman, Minister for Small Business Michael McCormack, and Treasurer Scott Morrison.
But we’ve been perhaps most surprised by the enthusiastic reception from the thousands of bookkeepers and accountants who use Xero. These Xero partners have told us how invaluable this data is in benchmarking their customers’ financial performance and even in gauging the efficiency of their own practices.
The five metrics we chose to report — Getting Paid, Cash Flow, Hiring People, Cloud Adoption and Trading Overseas — are just the start of what we hope will grow into an indispensable resource to help improve the lives of Australian businesses. Stay tuned in 2018 to see what else Small Business Insights has to offer!