Number of NZ small businesses with positive cash flow rises

AUCKLAND: New Zealand businesses may still be worried about profitability, but things are looking up for the small end of town.

The latest Xero Small Business Insights data showed 58.47% of New Zealand small businesses were cash flow positive in November, up 8.51 percentage points on the month and 1.94 percentage points yearonyear.

It was also nearly 1.5 percentage points higher than the previous record of 57% in March 2019.

The latest Stats NZ data shows New Zealand’s smalltomedium enterprises, or SMEs, contributed $153 billion, or 25% of total industry sales, in the 12 months to June 2018.

‘‘The economy is complex, but one of the first data points I look at when assessing the health of the small business sector is the percentage of cash flow positive businesses. At 58.47%, we’re in good shape,’’director of business growth at Xero David Bell said.

Economist Cameron Bagrie, who heads Bagrie Economics, said Xero’s data is at odds with sentiment surveys. ‘‘Xero’s data is not pointing to financial stress,’’ he said.

While Tuesday’s quarterly survey of business opinion from the New Zealand Institute of

Economic Research did show a slight tick up in confidence, firms remain deeply pessimistic. They are also downbeat about their own trading activity.

Xero said its analysis of the anonymised basic detail from Xeroregistered businesses’ invoicing behaviour is a more reliable guide than business sentiment surveys that ask far smaller numbers of business owners how they feel about their own business and the state of the economy.

Mr Bagrie said the sentiment surveys may reflect the fact that ‘‘most firms are coming off a pretty damn good run, so it’s hard to build on that.’’

It is more of a ‘‘levellingout story as opposed to a deteriorating story,’’ he said.

Xero also noted an improvement in the average number of days payments were late, something that has been a major headwind for small businesses, where more than half are owed at least $7000 on any given day.

The average number of days payments were late in November dropped to 7.10, a decrease of 1.44 days versus November last year. This brings the 12month average to 8.29 days late, the first time this figure has been below 8.3 days, it said.

‘‘Looking forward, December is typically strong for cash flow positivity. If trends continue, we could potentially have three in five small businesses operating with positive cash flow. This, paired with the decreased percentage of late payments, is a fantastic sign for New Zealand’s small business economy as we enter the new decade,’’ Xero’s Mr Bell said.

Late last year, the Government announced it was backing recommendations from the Small Business Council and would take the lead on prompt payment practices. It has set a target for government departments to pay 95% of domestic invoices within 10 business days by June 2020. The NZIER survey, meanwhile, signalled firms are still negative about profitability, citing rising costs and capacity constraints.

‘‘The details within the survey remain cause for concern that there is not sufficient support for a economic recovery to gain traction. In particular, profitability remains under pressure,’’ ASB Bank senior economist Jane Turner said.

A net 28% of respondents reported lower profits in the quarter, versus 30% in the previous survey. A net 16% expect to see reduced earnings in the coming quarter versus a net 18% in the previous quarter.