Global small business platform, Xero has released the latest Xero Small Business Insights (XSBI) update, highlighting contrasting trends for Australian small businesses this quarter. Despite strong jobs growth and improved payment times, sales were volatile, reflecting the complex operating environment for small businesses.
Sales growth averaged 3.9% year-on-year (YoY) for the June quarter compared to 3.8% in the March quarter, while wages growth averaged 2.9% YoY for the June quarter compared to 3.3% for the March quarter. Jobs growth averaged 4.5% YoY for the June quarter compared to 3.4% for the March quarter. Small businesses waited 21.3 days to be paid in the June quarter compared to 22.5 days in the March quarter.
The Xero Small Business Index averaged 142 points in the June quarter, a notable jump from 121 points in the March quarterly result. However, this rise was largely driven by an improvement in payment times in June, where the Index surged to 162 points.
Outside of this outlier result, the April and May average of 132 points is likely more indicative of the current state of small business performance in Australia.
Xero economist, Louise Southall said, “The continued jobs growth is positive to see; however, the decline in sales in June is something to watch. Softening wages growth suggests small businesses may be managing the jobs and sales mismatch by offering smaller pay rises to employees.”
Small business hiring remained strong in the three months to June, with June (+5.0% YoY) being the largest rise since October 2022. The ongoing strength in jobs could be due to an eagerness among small businesses to retain staff and avoid risking future skills shortages.
There was a noticeable variation in jobs growth across the regions and industries in the June quarter. Public administration and healthcare led the industry gains at 9.1% and 8.8% YoY respectively, while hospitality continues to show the softest results down 0.5% YoY.
Sales performance in the June quarter was similar to the March quarter; however, the monthly breakdown reveals a more volatile three months. Sales saw significant growth in April, up 12.8% YoY due to the early timing of Easter, followed by a modest 2.5% YoY increase in May and then a 3.5% YoY decline in June, the first since January 2021 (aside from the Easter impacted March 2023 result).
Wages growth averaged 2.9% YoY in the June quarter, slightly below the long-term average of 3% YoY. This indicates that real wages for small business employees continue to lag behind inflation and that small businesses are unable to keep pace with wage rises offered by larger businesses. Hospitality businesses continue to offer the largest wage increases, up 3.6% YoY across the sectors.
Payment times improved in the June quarter, likely due to businesses settling their accounts ahead of the end of the financial year. Small businesses waited an average of 21.3 days to be paid, down from 22.5 days in the March quarter, and payments were late by an average of 5.8 days, down from 6.4 days in March.
Xero Australia sales director, Theo Konstantas said, “The data shows that Australian small businesses continue to demonstrate resilience. We encourage small businesses to know their numbers and work closely with their advisors to find ways to improve productivity. With the stage three income tax cuts set to boost disposable income for millions of Australians this financial year, we hope consumers will use some of this money to support their favourite small business, driving sales performance in the coming months.”