Australian small businesses have kicked off 2026 in good shape, with new data from Xero showing solid growth across sales, jobs and wages despite rising costs and unstable economic conditions.

According to Xero’s latest Small Business Insights report, sales climbed 7.2 per cent year-on-year in the March quarter, with momentum building as the months rolled on. March alone saw a 10.9 per cent jump. The growth has come despite a backdrop of interest rate hikes and impact of the fuel crisis in the Middle East.

Xero economist, Louise Southall says the numbers suggest genuine growth rather than a a false surge from price rises.

“We can see that small businesses have started 2026 in good shape, with sales, jobs and wages all growing,” she said. “Importantly, this strength appears to reflect genuine increases in activity rather than price-driven growth, with cost pressures so far largely confined to fuel.”

Who is growing?

So which sectors are doing well? Construction posted the strongest sales growth at 10.4 per cent year-on-year, followed by healthcare (9.2 per cent) and financial services (8.8 per cent).

Geographically, Queensland and Western Australia are out in front, with sales up 9.8 per cent and 8.1 per cent respectively.

For small business owners, that lines up with what many are seeing on the ground: pockets of real demand, particularly in essential services and growth states.

Hiring up, but pressure remains

There’s also some movement on jobs, with employment up 3.4 per cent year-on-year. It;’s also a slight uptick on the last  quarter suggesting businesses are feeling confident enough to hire again.

Wages are on the rise too, increasing 2.7 per cent year-on-year. While that cost may be difficult for some businesses to swallow, it’s still below inflation, which means many employees are effectively going backwards in real terms.

Hospitality is one sector that’s really feeling the cost of doing business. Pay is rising fastest in that sector (up 3.5 per cent),yet it’s still struggling to attract staff.

Cash flow ok …

Xero reports that payment times seem to be holding steady. Small businesses are getting paid in an average of 24.1 days, roughly unchanged from the previous quarter: a breath of good news for business owners who are often plagued by late payments.

Still, i’s not all rosy, fuel costs are becoming a challenge for many businesses with those in transport and logistics already feeling the pinch. Sales in the sector jumped 13.2 per cent in March, largely driven by higher fuel prices rather than increased demand.

Southall says that could be an early warning sign.

“We are now watching closely to see if and how this inflationary impact bleeds into small businesses providing other goods and services in the coming months,” she said.

If all this has got you wondering what you should do next, Xero’s ANZ managing director, Angad Soin, says now’s the time to get on the front foot.

“The strong XSBI results are good news for small businesses but challenges are still to come,” he said. “Work with your advisor, pressure test your cash flow, and make sure you have clear visibility of your costs in real time.”

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