Small business trends 2022

A look at what businesses did in 2021, and what they’ll do more of in 2022.

Small businesses went into beast mode this year. They got leaner, tougher and a whole lot wiser. These small business trends are based on surveys with owners in the USA, Canada, the UK, Singapore, Australia and New Zealand. Comments come from accountants and bookkeepers in those same regions.

Business trend 1

Gearing up for nearly normal

After putting out fires for more than a year, business owners can see a more stable economy in front of them. Whether it’s a new normal or the old normal, it’s something they can finally plan for.

“There’s been attrition,” says Alan Kirby of ABI (Accountancy and Business Improvement). “Some businesses haven’t made it, but the survivors can now make a plan. And there is some pent-up demand, so there are opportunities out there.”

In fact David Stephens of Stephens Financial Services notes there may be too much demand in the short term. “Supply will bounce back more slowly. Businesses may find it difficult to secure inventory, rehire staff, and get back to where they were,” he says.

Small businesses know it won’t be a straightforward rebound. In fact, a third remain concerned about their ability to handle another crisis (Xero, 2021). But overall, optimism is beginning to trend upwards for small businesses.

“Clients are adapting well and have come out more resilient,” says Ya Wen How of AccountServe. “They’re simplifying their processes and becoming more efficient and we’re looking forward to the year ahead.”

Business trend 2

Budgeting for the boss

Most business owners pay themselves last, after vendors and staff. Given the cash shortages of the past year, it’s no surprise that 60% are feeling a pinch on personal finances (Xero, 2021).

Ya Wen How of AccountServe says owners will want to see an uptick in net profits they can draw from.

“Businesses must analyze margins and focus on the products and services that generate actual profits as they try to restore cash to the business,” she says.

While there may be a temptation to pocket excess cash for personal use, David Stephens of Stephens Financial Services recommends running a proper accounts payable report first.

“Owners often overlook upcoming business expenses when taking drawings, which creates cash flow issues later. Rather than clearing out the business bank account, they’re better off paying themselves a modest amount at regular intervals.”

Emily Marsten of EJM Bookkeeping says budgeting is the key. “Owners have to be honest about what the business can afford. And if it’s not enough to support their lifestyle, then they need to create a very specific plan for how to grow that amount. How many more sales do they need?”

Want to make better personal income one of your business trends for 2022? Get tips in this guide on how to pay yourself.

Business trend 3

Being (slightly) less scared of spending

While there’s growing hope of a recovery, more than half of businesses are still nervous about how they’re going to pay their bills, and 36% remain in cost-cutting mode (Xero, 2021).

Rebalancing away from a total spending freeze and back toward judicious investment will be one of 2022’s most delicate business trends.

“While unnecessary and frivolous spending has reduced and will stay low, we see some increase in digital expenses like marketing and ecommerce,” says Ya Wen How of AccountServe.

Alan Kirby of ABI (Accountancy and Business Improvement) says there will be pressure to spend as markets recover. “There is pent-up demand and smart businesses will go after that. They need to take a good look at how they market themselves. Increasingly, they’ll need to invest in online campaigns.”

Finding the money for these sorts of investments won’t be easy, especially as some businesses battle inflationary costs. Amy Vandenberg of Vandenberg Consulting encourages businesses to structure quotes and service agreements to protect cash flow.

“Quotes should include clauses to account for possible inventory price hikes. And project agreements should call for an upfront deposit to help protect cash flow.”

Business trend 4

Rethinking supply chains

More than a year after supply chains practically ground to a halt, 38% of businesses say that getting inventory is still an issue (Xero. 2021).

“Supply prices are going up almost monthly and businesses are having to buy months in advance,” says Amy Vandenberg of Vandenberg Consulting. “We’re only starting to see how complicated supply and demand can be.”

As a result, businesses are exploring multiple supply arrangements, says David Stephens of Stephens Financial. “They might have an import option and a local option so they’re not beholden to a single supply chain. Some are going directly to manufacturers, too.”

Meanwhile, independent CPA Michael Perullo says rising prices have discouraged businesses from carrying quite so much stock. “As costs go up that slow-moving inventory becomes untenable. It ties up cash, but there’s also the opportunity cost – that 100K could be earning you 8% instead of depreciating in a warehouse.”

Whichever approach makes the most sense will change from business to business. But either way, re-organizing the supply chain will be a key priority and top business trend for 2022.

Business trend 5

Linking healthy minds to healthy businesses

Going out on your own can be a lonely business. People who do it may have traditionally ignored that sense of isolation, but that’s changing.

Some 40% of small business owners worry about their mental health. A similar proportion are concerned about their employees’ wellbeing (Xero, 2021).

It reflects a wider social acceptance of the emotional ups and downs of being human. A 2021 study by Xero and the New Zealand Institute of Economic Research set out to see how big a deal emotional wellbeing is for small businesses.

“We found that people struggle with poor wellbeing about a quarter of the time,” says Craig Hudson, who championed the research. “That’s 13 weeks of the year they’re not at their best.”

Anything a business can do to get its people – owners included – on an even keel pays dividends. So many dividends, in fact, that wellbeing may just become entrenched as a top business trend for years to come.

“Each dollar invested in improving workplace wellbeing is paid back fivefold within a year,” Hudson says. “A culture of wellbeing creates more resilient, productive and happy employees. They can better cope with setbacks, take advantage of opportunities, and contribute to the business.”

Business trend 6

Kind of making peace with debt

Debt doesn’t sit well with small businesses. Never has. And yet it’s been a massive help in getting through the past year or so.

Debt is an uncomfortable trend for most businesses but seeing as 56% still face cash flow pressure, it’s likely to stick around for a while yet. There are, however, ways to keep it from becoming an unhealthy dependency.

“There’s good debt and bad debt,” says independent CPA, Michael Perullo. “Borrowing for things like equipment and enhanced productivity is good. Bad debt is generally when it’s used to cover cash crunches. You can’t avoid some operating shortfalls, but you don’t want to have a permanent layer of financing.”

David Stephens of Stephens Financial Services adds that while debt is a reality for now, there are ways to make it better. “Renegotiate debt wherever possible to take advantage of ‘honeymoon’ interest rates and repayment deferrals,” he says.

Amy Vandenberg has an extra tip for businesses whose costs are going up: “Inflation can eat into margins, so adjust prices to ensure you have enough cash to service debts,” she says.

Business trend 7

Getting stuff done with less help

Lots of businesses let people go during the past year and getting them back isn’t going to be easy.

“Hiring is really hard,” says Emily Marston of EJM Bookkeeping. “People don’t want to go back to a minimum wage job that might have a crazy schedule and where they may still lose their job.”

Ya Wen How of AccountServe agrees, adding that new hires have a growing list of preferences. “They want meaning, opportunities and a future with the business – plus other initiatives like flexi hours.”

Not every type of business can provide those sorts of perks, notes David Stephens of Stephens Financial Services. “As a result, we’re seeing business owners replacing staff with their own labor. Unfortunately that means those owners have less time to work on improving the businesses.”

How says businesses are searching for other ways to improve productivity. “They’re learning to integrate technology for things like procurement, sales, inventory management and accounting. One of our big jobs in the next 12 months is to help them improve their efficiency with online platforms.”

Business trend 8

Learning the ABCs of ecommerce

For retailers, ecommerce has been unavoidable for almost two years now. It’s fair to say that beginners have experienced some teething problems.

We asked ecommerce newbies what caused them the most grief in the first six months of their online journey. Roughly 60% had trouble calculating fees and taxes on online sales. A similar proportion found it tricky to make forecasts and manage cash flow (Xero, 2021).

“People forget that merchant service providers and marketplaces take a cut of each sale,” says ecommerce specialist, Shaheman Farid of Boobooks Accountants. Those fees – which can get close to 5% of revenue – need to be matched with the corresponding sale. The same goes for taxes. It’s a big bookkeeping job.

Meanwhile, Farid says, forecasting is almost impossible when you’re starting an ecommerce business. “You really need a quarter of sales data before you can hope to make any sort of forecast.”

Ya Wen How of AccountServe says ecommerce really needs partner technologies to work properly. “For some, you need to add the right software to help manage the accounting side.” She notes that an end-to-end system can automate arduous bookkeeping jobs and show financial results on a dashboard.

Is your small business trending towards ecommerce? Check out our guide on how to start an online business.

Business trend 9

Joining the great digital marketing experiment

Last year’s events compelled a quarter of businesses to consider a move online (Xero, 2020), which means a lot of people are on a crash course in digital marketing right about now.

No worries, says ecommerce specialist, Marc McKeown of FortBrave, even the veterans of online selling are in a constant state of learning.

“You need a lot of visitors to your site, because only about 2% will buy anything, but there’s no single proven way to get that sort of traffic,” he says. “You really need to try a lot of ideas in your first few months. A lot of stuff you don’t think will work ends up working.”

Ben Charlton of online marketing agency, Air8 Digital agrees that experimentation is the key, adding you don’t have to invest a fortune to learn.

“I have clients spending a few dollars a day on multiple platforms. They’ll check the results and double down on the approach that works.”

Charlton says not to focus solely on paid advertising. He says search-engine friendly sites can pick up a lot of free traffic and sales. Either way, all forms of digital marketing will be a massive retail trend in 2022.

Get more insights from Ben and Marc in our guide on how to do digital marketing.

Business trend 10

Going from cashless to cardless

A lot of the things that used to be involved in shopping aren’t anymore. Use of cash has been reducing for a decade, and now even cards’ days are numbered, at least in the physical sense.

Digital wallets allow customers to save their preferred payment information to their phones. They can pay by tapping their phone at the checkout terminal in stores, or by using solutions like Apple Pay and Google Pay to speed up checkout online.

Security is built into the experience because payments are authenticated through the phone using passcodes, facial recognition, or thumbprints.

Xero’s Ben Johnson, General Manager of Partnerships, says retailers should take a good look at accepting these types of payments.

“Offering seamless ways to get paid is a big part of providing a great customer experience. Companies supporting new mobile based payment methods will see an increase in repeat business.”

How do we know this stuff?

Xero is used by 2.5 million small businesses in 180 countries. We based this small business trends 2022 report on their experiences.

Specifically, data came from these surveys and reports:

  • Xero 2021 – Voice of Customer, small business survey
  • Xero 2021 – Global eCommerce report, small business survey
  • An NZIER study, 2021 – Wellbeing and productivity at work. Research commissioned by Xero and conducted by NZIER.

Insights and comments on these small business trends came from accountants and bookkeepers in the USA, the UK, Singapore, Australia and New Zealand.

Disclaimer: Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.

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