Xero report highlights mixed trends for Australian small businesses
- Xero, the global small business platform, has released its latest Xero Small Business Insights (XSBI) update, showcasing contrasting trends for Australian small businesses this quarter. Despite strong job growth and improved payment times, sales showed volatility, reflecting the complex operating environment for small businesses.
June Quarter at a Glance:
– **Sales Growth:** Averaged 3.9% year-on-year (y/y) for the June quarter (3.8% y/y for the March quarter).
– **Wages Growth:** Averaged 2.9% y/y for the June quarter (3.3% y/y for the March quarter).
– **Jobs Growth:** Averaged 4.5% y/y for the June quarter (3.4% y/y for the March quarter).
– **Payment Times:** Small businesses waited 21.3 days to be paid in the June quarter (22.5 days in the March quarter).
Small Business Index Shows Further Improvement
The Xero Small Business Index averaged 142 points in the June quarter, a significant increase from 121 points in the March quarter. This rise was largely driven by improved payment times in June[1], with the Index surging to 162 points. However, the April and May average of 132 points is likely more indicative of the current state of small business performance in Australia.
“The continued jobs growth is positive to see; however, the decline in sales in June is something to watch. Softening wages growth suggests small businesses may be managing the jobs and sales mismatch by offering smaller pay rises to employees,” said Louise Southall, Xero Economist.
Jobs Growth Continues Its Upward Trajectory
Small business hiring remained strong in the three months to June, with a 5.0% y/y increase in June, marking the largest rise since October 2022. The ongoing strength in jobs could be attributed to small businesses’ eagerness to retain staff and avoid future skills shortages. There was noticeable variation in jobs growth across regions and industries in the June quarter. Public administration (+9.1% y/y) and healthcare (+8.8% y/y), both supported by public sector spending, led industry gains, while hospitality showed the weakest results (-0.5% y/y). Western Australia (+6.9% y/y), along with South Australia and Queensland (+5.3% y/y), showed the strongest growth among states and territories, while the smallest increases were seen in Tasmania (+2.0% y/y) and the Australian Capital Territory (+1.3% y/y).
Sales Growth Shows First Decline Since Early 2021
Sales performance in the June quarter was similar to the March quarter, but the monthly breakdown reveals a more volatile period. Sales saw significant growth in April (+12.8% y/y) due to the early timing of Easter, followed by a modest increase in May (+2.5% y/y), and then a decline in June (-3.5% y/y), the first since January 2021 (aside from the Easter-impacted March 2023 result). This decline was widespread, with only healthcare (+4.4% y/y), public administration (+2.9% y/y), and education and training (+0.9% y/y) showing positive growth in June. All states and territories experienced a sales decline in June.
Wages Growth Slows Slightly
Wages growth averaged 2.9% y/y in the June quarter, slightly below the long-term average of 3.0% y/y. This indicates that real wages for small business employees continue to lag behind inflation (around 4.0% y/y), and small businesses struggle to keep pace with wage increases offered by larger companies. Hospitality businesses continued to offer the largest wage increases (+3.6% y/y) across sectors, while South Australia (+3.5% y/y) and Tasmania (+3.2% y/y) once again led wage gains across regions.
Small Business Payment Times Impacted by EOFY
Payment times improved in the June quarter, likely due to businesses settling their accounts ahead of the end of the financial year. Small businesses waited an average of 21.3 days to be paid, down from 22.5 days in the March quarter, with payments late by an average of 5.8 days, compared to 6.4 days in March. However, these gains are expected to reverse in the following months.
Theo Konstantas, Sales Director Australia, Xero, stated: “The data shows that Australian small businesses continue to demonstrate resilience. We encourage small businesses to know their numbers and work closely with their advisors to find ways to improve productivity. With the stage three income tax cuts set to boost disposable income for millions of Australians this financial year, we hope consumers will use some of this money to support their favorite small businesses, driving sales performance in the coming months.”
You can find the latest Xero Small Business Insights Australia Update [here](https://www.xero.com/small-business-insights/). To learn more about the construction of the Xero Small Business Index, see the methodology.
[1] In June, the payment time measures were impacted by the end of the financial year, causing both to fall significantly. This pattern is repeated each year and is expected to return to normal levels in subsequent months.
