Australian small businesses resort to personal savings or price hikes to combat rising costs, says Xero report.
According to a recent report titled “Money Matters: navigating the impact of economic conditions on the cash flow of Australian small and medium-sized businesses” by global small business platform Xero, Australian small business owners are facing financial challenges and taking measures to maintain profitability.
The report highlights the financial strain on small businesses, with 27 per cent revealing they have dipped into their personal savings to sustain their operations. Additionally, 34 per cent of small business owners have been unable to pay themselves.
Late payments from customers have a ripple effect on the entire supply chain, making it difficult for businesses to meet their own financial obligations (26 per cent). This contributes to cash flow stress, leading to negotiations of payment terms with suppliers (42 per cent) and experiencing revenue stagnation (40 per cent).
The report also reveals concerns among small business owners, with 45 per cent worried about their personal financial future and 48 per cent concerned about their business’s financial future. Only 49 per cent feel confident in achieving their business’s financial goals, and 60 per cent lack confidence in withstanding financial shocks.
Cash flow issues are widespread, affecting 60 per cent of surveyed businesses, with 14 per cent facing significant challenges. Nearly one-third (29 per cent) of small businesses monitor their cash flow daily.
Small business owners identify inflation as a major hurdle to cash flow management, with 57 per cent reporting its impact over the past six months.
To mitigate cash flow crunches, some businesses employ technology such as setting reminders and scheduling payments (36 per cent), using direct debits (36 per cent), and utilizing eInvoicing (33 per cent). However, only 38 per cent of owners utilize accounting software for cash flow tracking, and industries like construction and trade lag behind in adopting tech-savvy measures like cash flow forecasting tools.
When facing tighter cash flow, small businesses typically seek support from accountants or bookkeepers (24 per cent and 18 per cent respectively) and prioritize efforts to recover overdue payments (24 per cent).
The strain of managing cash flow takes a toll on business owners’ emotional and physical well-being, with reported feelings of stress (57 per cent), anxiety (50 per cent), and sleep difficulties (48 per cent) over the past year. Previous research by Xero indicated that Australian small business owners have lower overall well-being compared to the general population and ranked second-lowest among seven surveyed countries.
“Cash flow is a major challenge for many small businesses. Our research uncovers some troubling signs about how Australian small business owners are coping in the face of today’s volatile and uncertain economy, and the sacrifices they are making to keep their businesses going and employees paid,” said Leigh O’Neill, Executive General Manager, Money, Xero.
“Business owners must constantly monitor cash flow in order to manage it,” said O’Neill. “Planning and forecasting tools are a great way to identify cash shortages and consider all options, whether that’s drawing down on a line of credit or increasing your prices. Giving customers flexible payment options or automating payment processing can also ease cash flow pressures.”
“The stress of managing cash flow is having a detrimental impact on small business owners, affecting their livelihoods and happiness. That’s why it’s never been more important to plan, forecast, and have a strong contingency plan in place to weather the storm and to support their positive wellbeing,” said O’Neill.
To download a copy of the report visit Xero’s cash flow hub.
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