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Small Business Performance Oct-Dec 2023

Xero small business insights report
#XSBI #SalesGrowth #SmallBusiness

Insights and Forecasts

Every quarter, Xero releases data that it has pooled from Xero user files. The data is collected in an anonymous way, to track performance of small business economies. It's comprised of 2 parts:

The XSBI and the Update for the Oct-Dec 2023 quarter were released in March. This prompted us to amass and analyse our clients' performance data, to assess how their creative and cultural small businesses are faring as a group.

We’ve summarised the main points from the Update, drilled down into the XSBI raw data, and reflected on what we’ve actually been witnessing in our clients’ businesses. Our aim is to give you a sense of where YOUR business performance sits by comparison. If you’ve been struggling, you’re definitely not alone!

In this article, we focus solely on Australia, sales growth, and the industries in which our clients operate. We look at the Oct-Dec 2023 quarter and also highlight the month of December 2023, since small businesses came under increased pressure during that month.

After taking stock of the recent and current conditions, we’ll give you some tips on how to navigate the next 3-6 months.

Our Clients’ Experience

In the following table, our clients’ figures show stable or stagnant (depending on how you look at it) sales growth year-over-year in the Oct-Dec quarters of 2022 and 2023. The big difference is the bottom line: Sales income has not increased in line with the cost of running a business. In the 2022 quarter, 23% of our clients ran at a loss. A year later, that figure grew to 34%.

Profits and Losses Table

We’ve seen sales growth slowing, impacting event ticket sales, retail sales, etc. We’ve seen costs and wages rising, which is particularly impacting hospitality businesses. Energy bills are going up, which impacts everyone. If things feel tight and difficult, it’s because they really are.

XSBI Sales Growth Overview

The XSBI data shows that sales in Oct-Dec 2023 recorded an average rise of 5.1%. However, breaking down the quarter, we can see that October’s rise was high above that average, and there was a severe slowdown in December:

  • October rose 10.1% - Four consecutive interest rate holds had fuelled consumer confidence

  • November rose 4.3% - A much softer rise than the previous month

  • December rose only 0.9% - The smallest rise in sales since Jan 2021

The slowdown was a result of multiple interest rate rises and ongoing higher-than-usual inflation, which both weigh on consumer spending and business operations.

The peaks and troughs that you can see in the following graph relate to rises in inflation and subsequent consumer reactions to the increased cost of living and interest rate hikes. The Reserve Bank Of Australia (RBA) has been trying to bring inflation down to a steady 2-3% by adjusting interest rates. This RBA report documents the timeline of interest rate adjustments, and shows that the hikes began back in May 2022.

Jobs Sales and Wages Growth

XSBI Sales Growth By Industry

The following table shows the Oct-Dec 2023 quarter average as compared to the sharp general downturn in December alone. Arts & Recreation Services was the only industry to maintain its average in December.

Sales Growth by Industry

In the following graph, we look further back to the whole of 2023. We see that Retail Trade growth was fairly steady throughout 2023 but experienced a sharp downturn in the last quarter, and further contracted in December.

Arts & Recreation Services, after experiencing 17% growth in January 2023, had the sharpest fall but closed out the year in a more steady pattern with the highest quarterly growth of our clients’ industries.

Manufacturing, Information Media & Telecommunications, and Administrative & Support Services rode similar waves to each other for much of 2023.

Sales Growth By Industry

XSBI Sales Growth By Region

Overall, most states faced a similar pattern in 2023: Steady growth in sales across Australia for the Oct-Dec quarter and a sharp downturn in December.

The strengths of the December numbers for Western Australia and Queensland may be off the back of continued strong results from the resources sector, which assisted in supporting the economy and trickled through to small businesses.

Sales Growth By Region Table
Sales Growth By Region

Navigating The Next Quarters

We want to remind you that there is optimism for the next 5-10 years, at least for Melbourne. At Xero’s Summer Series event in February, we heard business analyst, Bernard Salt, say that Melbourne’s population growth means opportunities for small business. We might also start to see small interest rate cuts in the later part of 2024.

In the meantime, the task is to weather the current conditions. The Xero Small Business Index Australia Update forecasts:

Looking ahead, conditions are likely to remain challenging for small businesses as interest rates stay high …In its latest statement the Reserve Bank of Australia noted that "while there are encouraging signs, the economic outlook is uncertain and the Board remains highly attentive to inflation risks."

If the sales growth trend continues, we'd expect to see unemployment rise as businesses struggle to maintain a healthy cash flow with dwindling sales. The The Xero Small Business Index Australia Update also suggests:

For small business owners, the data highlights how important it is to do as much as possible to attract increasingly scarce customers. It also shows that maintaining profitability in the face of slowing sales and rising costs means there needs to be a focus on non-wage related ways of attracting and retaining staff.

So, for the next 6 months, what else can you do to help your business?

  • Talk with your bookkeeper and accountant to understand your position

  • Identify your break even point

  • Learn about cash flow forecasting

As always, we encourage our clients to engage with their numbers as much as they can. Understanding the financial state of your business, and being aware of the conditions ahead, will allow you to make informed choices and decisions.

We’ll be holding webinars on cash flow forecasting, free to our clients, in May 2024. If you’d like to attend, or if you'd like us to help you assess your business performance, email us at [email protected]

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