One third of Australian SME owners can’t pay themselves: Xero

Cash flow challenges are standing in the way of small business owners being able to pay themselves, with one-third (34%) saying that they are unable to do so and some business owners even dipping into their personal savings to mitigate rising costs and make a profit, according to a study released this morning by global small business platform Xero.

The report “Money Matters: navigating the impact of economic conditions on the cash flow of Australian small and medium-sized businesses” surveyed businesses on their behaviours and perspectives on cash flow management.

It found 60% of Australian small businesses say they don’t feel confident in their ability to absorb any financial shock and have been experiencing cash flow challenges over the past year, forcing 27% to dip into their personal savings to get through periods of tight cash flow.

Nearly half (48%) of small business owners say they are concerned about their business’ financial future, with 57% reporting that inflation has affected their cash flow over the past six months.

Report confirms general sentiment

Xero Australia country manager Will Buckley said the findings reinforce that Australian small businesses are navigating their way through some of the most economically challenging conditions in recent times.

“Cash flow stress and inflation in particular are having significant impacts on small businesses, forcing business owners to raise their prices and, in some instances, even dip into their personal savings,” he said.

However, Buckley said the same research shows many small businesses are being proactive about improving their financial position and managing cash flow.

“There are still areas of opportunity for small businesses, like leveraging technologies such as online payment services, making it easier for customers to pay you,” he said.

Buckley added that small businesses are vital to a thriving economy.

“We know small businesses are paying close attention to their cash flow and financial performance, especially with the end of the financial year fast approaching. It’s an important time for business owners to reflect and assess how their business is performing, so they can identify opportunities to improve,” he said.

“We’d encourage small business owners to work closely with their accountant or bookkeeper to really understand the cash flow challenges specific to their business. Working with an advisor means small businesses can implement strategies and tools like planning and forecasting, to help predict potential cash flow challenges and work on a contingency plan to mitigate negative impacts.”

The report also found that 61% of small business owners have increased their prices in the last 12 months to mitigate against rising costs and make a profit, and 45% admit they are worried about their personal financial future.

Australian Small Business and Family Enterprise Ombudsman Bruce Billson told SmartCompany he is keen to see the Xero report, as he is aware of the financial challenges facing many small and family businesses right now.

“Cost input pressures, changing customer behaviour and a softening in demand have all combined to squeeze margins and constrain the post-COVID recovery for many small businesses,” says Billson

“The emotional and financial reserves in too many small and family businesses have been already fully called upon, with little scope to replenish and even less capacity to navigate further shocks.”

This weighs heavily on the personal finances of small business owners too, says Billson.

“Small business owners have their own mortgages to service and cost of living pressures to navigate without dependable income. Many earn less than average weekly wages and are often the last to be paid after all other business payment obligations are met,” he says.

“When we think about pressures in the economy, many small business owners are feeling these more acutely and deserve to be front of mind as policymakers respond to these challenging times.”