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New Zealand Small Businesses Struggle with Negative Cash Flow for a Third of Each Financial Year
The global small business platform, Xero, recently announced the release of a Xero Small Business Insights report ‘Crunch: Cash Flow Challenges Facing Small Businesses’. Which found that cash flow challenges are undermining the operations and growth of at least 90 percent of small businesses.
In New Zealand, the average small business struggles with negative cash flow for a third of the year. With roughly 17 percent facing cash flow crunches, where monthly expenses exceed revenue, for more than six months of the year. This is a clear sign of chronic cash flow stress.
The report, which was prepared by Accenture, and supported by Xero, found that 95 percent of small businesses in NZ experienced at least one month of negative cash flow in 2021. The highest of the three regions (New Zealand, United Kingdom, Australia) which were analysed.
Charlie Nicholls, Xero’s Director of Business Growth, stated that cash flow challenges are a significant barrier for small business success. Something exacerbated by ongoing inflationary pressures.
In a statement Nicholls said, “The rising cost of living and inflation is starting to impact consumer behaviour, translating into less money available to spend with local small businesses.
“It’s increasingly important Kiwi small business owners ensure their customers pay on time as a key step towards improving cash flow.
“That sort of volatility can introduce huge amounts of uncertainty to how owners invest in sustaining and growing a small business, directly compromising their livelihoods and those of many in the community.
“The sooner we take deliberate action on stabilising cash flow for the New Zealand small business community, the better-placed they and our economy will be to reach their full potential.”
The collaborative report analysed inflow and outflow data from more than 200,000 businesses across New Zealand, Australia, and the UK to get a clearer picture of the extent of cash flow stress that small businesses experience.
Rachael Powell, Xero’s Chief Customer Officer, stated: “Months of negative cash flow can leave small business owners struggling to pay essential costs like wages and rent. This, in turn, compromises the ability of small businesses to stay afloat, hire, and grow.
“Ensuring customers pay on time is a key step towards improving cash flow. Pandemic-led changes in business models. Such as the adoption of food delivery models in hospitality or e-commerce sales for retail, can also help improve cash inflows in the longer-term.”
The findings of the report also indicate that small businesses could insulate themselves from cash flow crunches with help from their accountants and bookkeepers. By using their financial data to predict crunch periods and to build up liquidity ahead of time.
Powell further stated, “The latest Xero Small Business Insights report reveals just how persistent and systemic these cash flow challenges are for small businesses on a global scale. For many of these businesses that regularly experience cash flow crunches, prompt invoice payments and more support in budget planning could unlock huge growth opportunities.
“Small business owners don’t have to sit back and accept regular cash flow trouble. By working closely with their accountants and bookkeepers, they can beat the crunch by analysing their finances, anticipating periods when cash flow often dips into the red, and adjusting how they operate to improve their monthly cash flow position.”
The entire report, including the fiscal insights and the analysis, was produced by Accenture. With the support of Xero and using the publicly available Xero Small Business Insights data. And with Accenture’s own estimates for the purpose of informing developed policies to support small businesses.
It was released during Xerocon London, a premier event for cloud accounting leaders, where more than 2,000 representatives from the bookkeeping, accounting, and app partner community gathered to hear the latest from industry leaders and updates from Xero.
A follow-up report will be released in the next few months and will investigate the cash flow ‘red flags’ – signs which indicate to small businesses any impending cash flow challenges.
These reports, although concerning, should provide small businesses with a guideline of what to look out for and reveal how they can utilise their accountant or bookkeeper to ensure against future negative cash flow.