According to Xero Australia managing director Trent Innes, today’s small business ecosystem is still filled with friction and for small businesses to thrive in the future, there’s a need to see barriers like unnecessarily inefficient and prolific use of analogue processes removed.
Xero’s vision for a “frictionless” small business economy comes as new data from the company confirmed that small business owners are generally focussed on the short term, with the vast majority (73%) only planning up to six-months ahead.
Xero says this includes almost one in three (31%) small businesses that get by with just a day-to-day focus – and only 6% of small businesses with a five-year plan.
“The data, while alarming, is unsurprising. It shows that by and large, Australian small businesses don’t have a long range view when it comes to business planning. Just as employees shouldn’t live pay cheque to pay cheque, small businesses should be thinking long term to plan for change and growth,” Innes said.
He said Xero’s own Small Business Insights data routinely demonstrates that only 45% to 55% of small businesses in Australia are cash-flow positive at any time.
In April 2018, 52% of Australian small businesses were cash-flow positive, and Xero says that means 48% were striving to get out of the red.
Innes said the pressure forces businesses into “short-termism and rather than spending time on a five-year plan, small businesses are, instead, chasing payments to ensure they can pay bills”.
“Small business owners are focused on the day-to-day as they have immediate outgoings. As we ring in the new financial year, we urge small businesses to use this opportunity to start thinking about future proofing their business for long term success,” Innes said.
Xero says that to help small business owners break out of short-termism and future-proof for long-term success, it has released its prediction for how it sees the small business landscape looking like in 2023.
And the company says Australia is making positive inroads into changing the situation with the introduction of Single Touch Payroll starting 1 July 2018 set to remove a lot of friction in the way businesses report employee information including salary, wages and superannuation.
Over the next five years, Xero says it expects to see the government continue to make policy moves to enable businesses to work smarter.
“This means no more sending letters, files, forms and faxes to the ATO, it should all become increasingly digital,” Xero says.
Five years from now here’s what Xero sees:
- Digital systems of record to become ‘must-haves’ – internationally, there is a trend by governments of developed nations to implement a level of compliance legislation where every business needs to be on a digital system of record, so they can digitally register their finances. The Australian government is also starting to mandate this – of which STP is an example. Over the past 5 years, Australian small businesses have embraced technology at an alarming rate and the Australian government has rapidly replatformed so that it can better support digital small business. As we head towards 2023, having a digital system of record will increasingly become compulsory, rather than a ‘nice-to-have’, which means keeping financial records in spreadsheets and shoeboxes may no longer be acceptable in future.
- E-invoicing to become simpler and commonplace – The federal government has adopted an industry-wide framework for digital invoicing, which will make exchanging electronic invoices between businesses and government sectors easier, regardless of the software used. Also another example of the move towards a frictionless economy, we expect e-invoicing to see rapid uptake in the next five years, leading to savings in time and money for business owners that get onboard sooner rather than later.
- Payment times reduced to under 30 days – according to Xero’s Small Business Insights data, payment times on 30 day invoices have decreased by three full days over the past three years (41 days average in 2015, 38 day average in 2018). If this trajectory continues, we would like to see the average invoice be paid within 30 days. With e-invoicing, the possibility of sub-14 day trading terms becomes more and more likely
- Gains from increased cash flow – reduced payment times and a frictionless economy should translate into an uptick in cash flow positivity, and profitability, for many small businesses. The extra cash flow will enable business owners to hire more confidently, rely less on casual employment and create more jobs for the broader Australian economy.
“Based on the macro trends influencing our nation and economy, the future of small business is one built on technology,” Innes says.
“The digitisation of business is happening at all levels and, increasingly, it’s being mandated by government. This new financial year, we urge small businesses to consider these sweeping changes and start putting plans in place to future-proof their business for the long-term.”