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A report by the software platform found over a quarter of small business owners are using personal savings to keep their organisations afloat.
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Small businesses need cash flow help: Xero
21 June 2023
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10 minute read
Small businesses are struggling with cash flow with many needing to increase prices or having to dip into personal savings to counteract the impact of rising costs.
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In a recent report which surveyed small and medium-sized businesses on cash flow management, Xero found there was significant financial stress on firms due to the current economic climate.
It found 27 per cent of business owners have had to use personal savings to keep their businesses afloat as well as more than a third, 34 per cent, are unable to pay themselves.
Executive general manager of money at Xero Leigh O’Neill said cash flow was proving to be a significant challenge for businesses.
“Cash flow is a major challenge for many small businesses. Our research uncovers some troubling signs about how Australian small business owners are coping in the face of today’s volatile and uncertain economy, and the sacrifices they are making to keep their businesses going and employees paid,” said Ms O’Neill.
Xero said late payments could be a key factor hurting businesses, with a possible impact on the entire supply chain, creating a domino effect which the survey found made it difficult for businesses to pay their own bills on time, 26 per cent, and experienced stalled revenue, 40 per cent.
The report also found over 60 per cent of businesses surveyed had experienced cash flow issues with 14 per cent undergoing significant challenges.
Xero revealed 45 per cent of small business owners were worried about their personal financial future, with almost half - 48 per cent - concerned about their firm’s financial future with only 49 per cent confident their businesses were on track to achieve their financial goals.
Small businesses said inflation and its impact on cash flow was a key problem with almost three in five (57 per cent) stating it had impacted their cash flow management over the recent months.
Xero said businesses needed to embrace cash flow management measures and forecasting tools to improve their firm’s resilience while facing increasingly difficult external pressures.
“Business owners must constantly monitor cash flow in order to manage it,” said Ms O’Neill.
“Planning and forecasting tools are a great way to identify cash shortages and consider all options, whether that’s drawing down on a line of credit or increasing your prices.”
“Giving customers flexible payment options or automating payment processing can also ease cash flow pressures.”
Xero also found the cash flow struggles were impacting the health of small business owners with 57 per cent report feeling stress, 50 per cent anxiety and 48 per cent trouble sleeping over the last 12 months.
The firm said the results reflected the findings of previous research conducted between November 2022 to February 2023, which found the overall wellbeing of Australian small business owners was below that of the general population and that Australia had the second-lowest overall wellbeing of the seven countries surveyed.
“The stress of managing cash flow is having a detrimental impact on small business owners, affecting their livelihoods and happiness,” said Ms O’Neill.
“That’s why it’s never been more important to plan, forecast, and have a strong contingency plan in place to weather the storm and to support their positive wellbeing.”
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