Monitoring small fry, at last
IF cash is king, then an alarming number of Australian small businesses are falling well short in their regal connections.
There are more than two million of us in the small business category across the nation and a new report released this month has shown that just 50.7 per cent actually had positive cash flows as of June 2017.
In other words, for the 49.3 per cent of businesses on the wrong side of the ledger that equates to about a million small enterprises on a survival knife edge, fighting an often losing battle to have their invoices paid on time.
The analysis was delivered as part of accounting software giant Xero launching a new program to provide comprehensive and regular data about the state of Australian small businesses — Xero Small Business Insights.
Xero has developed the new platform with support from the global accounting firm KPMG Enterprise and, according to Xero Australia’s managing director, Trent Innes, the aim is to provide a monthly update based on the data from some of its half a million Australian subscribers.
“It’s a snapshot of the small business economy, aggregated and honest,” he said at the launch event earlier this month.
“Learning from a large sample of Australia’s 2.1 million small businesses, we can now provide insights into their health for the benefit of those that interact with small businesses most.
“Policy and regulation is most effective when based on timely, accurate data. Xero Small Business Insights provides exactly that, based on how small businesses are performing every month, instead of every quarter or year.”
The idea of the report is to inform government policy and regulation affecting the small business sector by providing that regular update across five major areas: cash flow, payments, employment, trading overseas and cloud adoption.
KPMG special adviser and demographer Bernard Salt hailed the initiative as a great leap forward considering the lack of data around small businesses.
“I think there is an entire life form in Australian small business that we haven’t really been able to see before, but we can see it now,” he said.
And there’s plenty of insight to be had by investigating the report’s dashboard.
For example, when it comes to looking at how promptly Aussie small businesses are being paid, it shows that invoices with 30-day payment terms waited an average of 36 days in June this year.
To be fair, June typically represents a low point for cash flow positivity ahead of the end of financial year, with small businesses typically experienc- ing a surge in payments in July.
That 36-day payment wait is apparently an improvement on last year when the figure was closer to 40 days.
But Xero’s examination of online data showed that, worryingly for small businesses, 47 per cent of the total number of invoices issued in the past year were paid late.
And when payments arrived past due, they weren’t just a little bit late. On average, they came in 30 days after the due date.
To put it another way, almost half of all small business invoices languished for about 60 days before being paid. No wonder cash flow is a nightmare for so many small businesses.
According to Trent Innes, one of the potential benefits of the new platform could also be in providing insights into whether a government initiative affecting small business has been effective.
“Even if the Government, for example, puts in some policy or makes an initiative, we should be able to see that trend line over time and see if it’s actually impactful,” he said.
While it won’t make the business of doing business any easier, the Xero Small Business Insights report — and the regularity of its monthly updates — might make some small business owners feel a little more comfortable in knowing that many of us are in the same boat and somebody appears to be listening. Leigh McClusky is McCo Group managing director.