Aussie businesses growth slows to a pandemic low

- March 5, 2024 2 MIN READ


Small business owners across Australia are facing increasing pressures as new data from Xero, unveils a slowdown in the small business economy.

The latest findings from Xero Small Business Insights (XSBI) covering the period from October to December 2023 indicate a challenging environment for small businesses, with the largest decline in small business performance since the beginning of the pandemic. 

Small businesses face declining sales and wages growth

According to Xero’s data, small businesses experienced a notable decline in sales and wages growth during the December quarter. Sales growth averaged 5.1 per cent year-on-year, marking a decrease from the 6.8 per cent year-on-year growth seen in the previous quarter. Similarly, wage growth dipped slightly to 3.0 per cent year-on-year, compared to 2.8 per cent year-on-year in the September quarter.

“Multiple interest rate rises and higher-than-usual inflation are impacting household budgets and we can see a shift in the December data, particularly in the retail sector,” noted Louise Southall, Xero Economist, emphasising the impact of external factors.

Index plummets to lowest level

The Xero Small Business Index, a key indicator of small business health, plummeted to its lowest level since September 2020, dropping 37 points in December alone. This decline reflects the challenges faced by small businesses amidst ongoing economic uncertainty. It’s a condition Xero predicts may continue as the pressures and cost of doing business increase.

“Looking ahead, conditions are likely to remain challenging as interest rates stay high and inflation is still above the central bank’s target,” Southall added.

Sector impact varies

The report also highlights a concerning trend in sales growth, with December marking the smallest rise in sales since January 2021. Industries such as retail, wholesale trade, and agriculture experienced particularly soft performance during the December quarter.

In contrast, sectors such as health care and education and training recorded strong sales growth, indicating varied experiences across industries. All states and territories in Australia recorded a decline in sales growth, further underscoring the widespread challenges faced by small businesses.

Navigating economic headwinds

Theo Konstantas, Interim Country Manager at Xero Australia says while the data paints a challenging picture for small businesses, it’s important for them to leverage support networks and adopt new technologies to navigate the challenges ahead.

“In the face of headwinds, small businesses are needing to get creative when it comes to key issues such as finding new customers, staying productive, and addressing staff shortages. This might involve adopting new technologies to streamline processes and unlock opportunities,” Konstantas said.

Payment times

Despite these challenges, Xero reports that payment times for small businesses remained steady, with little change observed over the course of 2023.

The time small businesses waited to be paid averaged 22.7 days in the three months to December, the same result as the September quarter and just 0.1 days longer than the first half of 2023.

On average, payments were made 6.3 days late in both the December and September quarters and only slightly longer (6.6 days) in the first half of 2023

The data reveals the importance for small business owners to adapt and innovate in response to changing economic conditions. It also shows that maintaining profitability in the face of slowing sales and rising costs means business owners may shift their focus onto non-wage related ways of attracting and retaining staff.

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