The latest Xero Small Business Index is out today with mixed results. The highest jobs growth in 11 months was an important positive, but wages growth, sales growth and payment wait times are looking shaky.

Xero, the global small business platform, today released its latest data on the health of Australia’s small business economy during July from the Xero Small Business Index. The results show that small business is hanging in there, despite supply chain issues and the uncertainty of inflation.

“Small businesses remained resilient in the face of inflation and other supply chain challenges according to the July index,” says Joseph Lyons, Managing Director Australia and Asia, Xero. “In fact, we’ve seen the strongest jobs growth in almost a year, even across industries like hospitality and agriculture, which have recently struggled to find talent.”

Lyons noted that while inflation is impacting small businesses globally, sales data indicates that Australian small business is faring slightly better compared to those in New Zealand and the United Kingdom.

“While this doesn’t mean it’s smooth sailing for local small businesses – as most can attest to – it’s promising to see an overall above-average result, especially for sectors that have been doing it tough,” says Lyons.

Strongest jobs result in 11 months

 Jobs rose 4.1 per cent year on year in July – the largest rise since August 2021 – and has now been positive for three consecutive months.

All states showed jobs growth, with NSW leading the pack with 7.7 per cent year on year (y/y). Even Tasmania, which has recorded declining jobs for the last six months, showed a positive 1.8 per cent y/y increase in July.

This positive jobs growth was seen across all industries, including hospitality, which recorded falls in jobs for the previous six months. Information media and telecommunications and agriculture reported the lowest figures, while arts and recreation led all industries at 11.1 per cent year on year jobs growth, a significant result given their tough couple of years during COVID restrictions.

Wage growth did not rise significantly

In less good news, despite the annual increases in minimum wage (5.2 per cent) and award wages (4.6 per cent) that came into effect on 1 July, the Index didn’t find a material impact on aggregate wage costs. Wages grew by 3.6 per cent y/y, up from 3.4 per cent y/y in June.

“July was the first month of the new financial year where the increase in minimum and award wages was in place and we didn’t see a significant effect. We will get more award wage information in October when the award wage rise comes into effect for the hospitality industry,” says Louise Southall, Economist, Xero.

The recent July Employment Hero SME Index supported these findings. “Wages growth has been strong overall, however, there has been some divergence between states and territories, as well as between SME sizes,” said Ben Thompson, Founder and CEO of Employment Hero.

The SME Index found that wages of employees in smaller enterprises (1-19 employees) saw less growth than larger businesses with 20-199 employees (four per cent versus 6.3 per cent). Wage growth was highest in larger enterprises (200+ employees), showing an increase of +6.7 per cent.

Cost of living pressures continue to bite

The main area of concern for July is the slowdown of sales growth, which has slowed significantly since June. Many Aussies are facing cost of living pressures as prices rise faster than wages, causing a flow-on effect for small businesses across the country.

However, this slowdown in sales growth appears to be due to lower margins, not volume of sales. The volume of sales still rose 1.4 per cent (down from 5.3 per cent in June).

“This means small businesses still sold more goods and services in July 2022 than they did in July 2021,” says Southall. “This is different to the experience of small businesses in other countries like the United Kingdom and New Zealand, where sales, excluding price impacts, have actually declined for June and July.”

Time to pay rose to 23.2 days

The average wait time for small businesses to be paid rose 2.7 days in July to 23.2 days.

There was a 1.6 day rise in late payments to 6.5 days after a record low of 4.9 days in June, which was also impacted by the end of the financial year.

The Australian Small Business and Family Enterprise Ombudsman, Bruce Billson finds this payment time blowout unacceptable. In an opinion piece he recently wrote for Kochie’s Business Builders he took aim at big business for the increase in time-to-pay.

“Big business must show leadership, respect and care for our small businesses and pay their bills on time,” he wrote. “And for big business leaders urging support for small business ‘doing it tough’, a practical and achievable measure is to get serious about improving payment performance to small business.”

The latest report card from the Payment Times Reporting Regulator showed that:

• Only 47 per cent of big businesses paid more than 80 per cent of their suppliers by their own agreed payment deadline.
• The average contract terms for payment marginally dropped to 36.2 days, from 36.6 days.
• Only 31 per cent big businesses paid more than 80 per cent of their small business invoices within 30 days.

“Good businesses pay. That’s a vital part of business relationships…” says Billson. “But this report tells us that far too many big businesses are falling well short of paying their bills on time.”

You can read the full July results from the the Xero Small Business Index here.

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