Australian small businesses closed out 2025 with their strongest sales and jobs growth in two years, but a February rate hike is already testing that momentum.
What’s happening: New data from Xero Small Business Insights, drawing on anonymised figures from 520,000 Australian small businesses, shows the December quarter 2025 delivered the strongest sales and jobs growth in two years.
Why this matters: After a difficult 2024, the second half of 2025 marked a genuine turning point for Australia’s small business sector. But the Reserve Bank of Australia’s decision to raise the cash rate in February 2026 has cast a shadow over that recovery.
Australian small businesses ended 2025 on a high, recording their best quarterly sales performance since mid-2023 and their strongest jobs growth in two years, according to the latest Xero Small Business Insights (XSBI) data published on 26 February 2026.
The December quarter report, which analyses anonymised and aggregated data from 520,000 Australian small businesses, shows sales grew 6.7% year-on-year, building on a 6.3% rise in the September quarter. December itself was the standout month, with sales up 9.6% year-on-year, the largest monthly increase since April 2024.
Jobs followed a similar path, growing 3.4% year-on-year in the December quarter, up from 2.8% in the September quarter. For context, that is the biggest increase in employment in two years, a sign that business owners felt confident enough in their sales recovery to start expanding their teams.
Louise Southall, Xero Economist, said: “Small businesses worked hard to find their footing in late 2025, reaching sales and employment levels we haven’t seen in two years. However the February cash rate hike is a reminder of the fragile environment these owners operate in. As the RBA moves to address rising inflation again, the momentum we saw in December will be tested. Small businesses will need to remain disciplined to navigate the potential impact on consumer spending over the coming months.”
It is a cautious note to what had otherwise been an encouraging period. As Dynamic Business reported in October 2025, the September quarter had already shown signs of momentum returning, with interest rate cuts from August 2025 beginning to flow through to consumer spending. The December data confirmed that trend, before the RBA’s February rate increase complicated the outlook.
Paid faster, still too late
One of the more significant findings in the December quarter data relates to how quickly small businesses are getting paid. On average, businesses received payment 23.9 days after issuing an invoice, the fastest quarterly payment time since the XSBI series began in January 2017. The late payment metric, which measures how long past the due date an invoice sits before being settled, also improved slightly, dropping to 6.6 days from 6.7 days in the previous quarter, the second lowest result on record.
But Angad Soin, Managing Director ANZ and Global Chief Strategy Officer at Xero, put those numbers in plain terms.
“Yes, we’re seeing the fastest payment times on record, but let’s be clear: small businesses are still being paid almost a week late. That means they’re effectively financing their larger customers and, when you’re running on tight margins, being paid six or seven days late isn’t an inconvenience. It’s the difference between investing in growth and covering payroll.”
Soin added: “Cash flow discipline is becoming non-negotiable. With Payday Super on the horizon, owners need real-time visibility over their cash position and the confidence to forecast ahead.”
The variation across industries remains stark. Education and training businesses waited the longest, with invoices paid 9.9 days late on average in the quarter. Wholesale trade (8.8 days late), manufacturing and information media and telecommunications (both 8.7 days late) also featured near the top of the list. Hospitality (3.2 days late), financial services (3.7 days late) and health care (4.1 days late) were the best performers.
Construction leads, retail trails
Not every industry shared in the December quarter’s gains. Construction led all sectors with 9.5% year-on-year sales growth, followed closely by health care at 9.3% and real estate at 8.6%. Both construction and health care also led on hiring, growing their workforces 5.3% and 5.7% year-on-year respectively.
By contrast, retail trade grew just 4.7% and hospitality 3.5%, both below the national average of 6.7%, suggesting a more subdued end-of-year period for industries that typically rely on the final months of the calendar year.
The Black Friday period was a particular point of interest. Southall noted that November recorded only 3.3% sales growth, the softest monthly result in the quarter, suggesting smaller retailers did not capture much of the discount-driven spending that has come to define that period. As Xero’s data put it, discount-driven periods appear to be amplifying the divide between large retailers with pricing power and small businesses operating on thin margins.
Geographically, Queensland led the country with 8.3% year-on-year sales growth, followed by South Australia at 7.8% and New South Wales at 6.6%. Western Australia, typically the strongest performer in this series, came in fourth at 6.5%.
What comes next
Wages data for the quarter came in at 2.0% year-on-year growth, though Xero noted this figure was distorted by a weak December result of just 0.5%, which it attributed to holiday period delays in payroll reporting through its platform. October and November wages averaged 2.8% year-on-year, more consistent with the previous quarter’s 2.7% result and close to the series’ long-run average of 2.9%.
The broader picture drawn by the XSBI data is of a small business sector that spent much of 2025 finding its footing, made real progress in the second half of the year, and now faces fresh uncertainty heading into 2026. The RBA’s February cash rate increase has raised questions about how long the consumer spending recovery will last, particularly as household budgets come under renewed pressure.
For small business owners, the message from Xero’s data is clear enough: the conditions are better than they were, but they are not yet stable, and getting paid on time remains an unresolved problem. The late payment figure of 6.6 days may be near its record low, but the goal, as Xero’s report put it, is zero.
To find out more about how Xero Small Business Insights is constructed, see the methodology.
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