Amid ongoing challenging economic conditions, inflation is top of mind for consumers as they try to stretch their paycheck across rising bills, housing costs and everyday essentials. This leaves less money to spend in local small businesses.
According to the latest "Xero Small Business Insights" data (XSBI)—which uses aggregated and anonymized data from tens of thousands of small business customers from the US and Canada—small business sales growth experienced its smallest rise in June (+6.7% year-over-year) since February 2021.
The data shows that sales growth has been on a downward trend seen since the beginning of the year—averaging 8.9% (y/y) growth in the three months leading to June, down from an average of 14.6% y/y growth in the three months leading to March.
While growing sales numbers is a positive outcome, once adjusted for inflation it is clear that the sales growth was entirely due to price increases rather than small businesses selling more goods and services.
Further, according to a survey conducted by Xero around consumer trends and what they are prioritizing amid astronomical inflation rates and the impending recession:
- 68% of consumers are extremely or very concerned about a recession
- 58% are watching more for sales and discounts
- 47% are spending more time looking for the best prices
Additionally, with 76% of consumers extremely or very concerned about inflation, 39% will prioritize price above all else.
The results combined show that the average consumer is finding themselves with less spending money after each paycheck thanks to wage stagnation mixed with rising rents, food prices, energy prices and more. This is leaving less income each month for consumers to spend shopping at small businesses after taking care of the essentials.
But what does this mean for accountants and bookkeepers? Well, for those who work with small business clients, it is clearly more important than ever that small businesses get in control of their finances.
As inflation remains high, it becomes essential for them to focus on their profit margins and the impact of their customers’ declining spending power. Understanding exactly what is happening to their costs and profit margins at all times will help them better navigate this tricky period.
According to the latest XSBI data, the challenges in spending habits have also had an effect on small business creditors’ ability to pay on time. Small business invoices were paid, on average, 6.8 days late for the three months to June. This was slightly longer than the 6.2 days late in the three months to March.
On a more positive note, they are being paid quicker than they were in 2021, when payments were made an average of 7.9 days late.
In order to navigate current economic conditions, accountants and bookkeepers need to ensure their clients continually have a pulse on their cash flow and ensure all invoices and payments are being made on time. Becoming a trusted advisor and helping them invest in new technology to help track financial transactions in real-time will provide the most benefit to small businesses as they look to get in control of their finances.
One solution is ensuring clients are investing in cloud-based accounting software, which allows small businesses to record and keep track of their financial transactions in real-time through a user-friendly interface. Often, cloud-based accounting software solutions allow for app integrations, which provide more scalability and customization for small businesses, depending on their needs and services.
One example of this is invoicing software, which will help ensure they receive their payment up front and make it easier for customers to pay their bills. With increasing cash flow pressure expected in the coming months, small business owners will need much-needed consistency like this from the software their advisor uses.
Louise Southall is an economist and small business specialist with Xero.
Like what you're reading?
Subscribe to our FREE newsletter and we'll deliver content like this directly to your inbox.