Real data shows SMEs are in good health, yet business confidence is down. Three issues need tackling, writes Xero’s David Bell, to reshape the way we view the small business economy.

Business confidence survey questions have been the lifeblood of how many view the economy for too long. Significant national business decisions are being made on qualitative surveys over real data. These are opinion-based and are an ineffectual economic measure not backed by hard business data.

As we head into the 2020s, we must start drawing from real data to reflect what’s really going on in the economy. Only then will we be able to reshape the small business economy for growth.

The reporting on business confidence in 2019 was dismally low, to the point where it was compared to the height of the Global Financial Crisis in 2008.  However, by most conventional measurements, the economy was performing very well. The Ministry of Business, Innovation and Employment tracks a consistent growth of GDP and 2019 ended with one of the lowest unemployment rates of the 2010s. 

This activity was at times vastly different to how businesses reportedly felt about the economy. In fact, our Xero Small Business Insights data shows the percentage of cashflow-positive small businesses in Aotearoa is increasing – and in November 2019 reached a new record high. 

Cashflow is the first data point I look at when assessing the health of the small business sector. It’s a real figure that reflects real performance.  Ultimately, the facts and figures around small business activity demonstrate underlying economic strength as we head into the next decade. So why has the business sector talked itself into a false sense of doom and gloom? What better time to reflect and reshape the way we view the small business economy?

The New Zealand property market has been bolstered by the media as the be-all-and-end-all way for everyday Kiwis to get rich through investment. But success comes in many forms, and some of the wealthiest people in this country are pragmatic small business owners. 

New Zealand’s small business sector already represents approximately 30% of New Zealand’s GDP. If we get smarter around productivity and investment in our nation’s small businesses, we have the opportunity to grow this. And for this to happen, we’ve got to unlock growth for businesses that want it and efficiencies for those who need it.

Compliance, regulation and business costs

One of the major hurdles for small businesses are the complications of day-to-day operation. Technology can help streamline these operations, but how else can we boost efficiency for our small business owners? 

Compliance and regulation changes may be a headache for small business owners, but they are also providing opportunities to drive technology and make life easier for them. We’re seeing innovations in the RegTech (regulatory technology) space, offering simple solutions to small businesses trying to keep up with compliance and regulation in the financial industry. 

With the support of the government, compliance and regulation can be a positive thing for New Zealand. E-invoicing is one example that will impact the way small businesses operate. It may sound difficult, or expensive, but it will actually enable you to get paid faster. 

At the moment, 46% of small businesses in New Zealand don’t know what e-invoicing is or how it could improve their business. And for a quarter of those who do, they believe the cost to invest in invoicing just isn’t worth it. 

I often hear people say they don’t bother with technology, but what they really mean is that they aren’t comfortable with change. If you don’t keep up with your competitors, you end up missing out on new customers and new opportunities. 

Things like e-invoicing and the adoption of cloud technology involve upfront investment, but the productivity benefits will begin to pay themselves off quickly. These solutions need to be accessible and, more importantly, affordable for small businesses. If these upgrades cost an arm and a leg, of course there will be hesitance to adopt. 

The difficulty is striking the balance, and the role of the government to help facilitate these changes is paramount. Tax breaks, funding opportunities, resources and trade networks are just some of the tools the government can offer to help alleviate the weight on small business’ shoulders.

Upskilling 

In tandem with government support around compliance and regulation, we need to figure out how to enable our small business owners to upskill themselves and their employees. 

The benefits are huge – keeping up with the latest trends in innovation, building a reputation among both job seekers and customers, retaining staff by keeping them stimulated and engaged to name a few. 

All of this leads to money in the owner’s pocket. So how can we incentivise people to get over the hurdles and help them become a lifelong learner, all while running a business? 

We know there is a lot of pressure to do everything, not to mention the ever-present time pressures of work-life balance. In fact, 31% of small business owners are regularly working more than 40 hours per week. 

Improving processes and investing in technology to streamline everyday tasks is imperative to ensuring our small business sector continues to thrive. It should feel easier to upskill. Making use of online tools, small business guides and resources is one way to learn more and keep up to date. You may be surprised, but you can find some really great resources offered by IRD, as well as guides from the banks and content from universities.

Check in with your accountant or advisor to make sure they are updating you on your financial data regularly. Are they encouraging you to be engaged with your finances so that you can grow your business? Make sure you are getting the most value out of having them as an adviser.

Government education programmes, independent learning, tertiary education, employee training initiatives – we need to improve access to these and other avenues of upskilling. Small businesses also have a responsibility to keep up with changes in the way people are working, especially in their industry. 

Stimulating the economy

The number one thing we can do as a nation is to take a good, hard look at our attitudes towards paying invoices. How do we change the cultural norm that it’s alright to pay your invoices a little late, or in some cases, very late? 

More than half of small businesses (62%) have less than 5% of invoices paid at the end of the month against their total revenue. That’s a lot of money out of pocket for a sector that makes up almost a third of our nation’s GDP. It’s not good enough and we need to do better. 

Prompt payments to small businesses benefit everyone. If a small business can afford to pay their suppliers and employees, that’s more money available to be reinjected into the economy – a simple, cyclic pattern. 

The impacts of not paying on time can be devastating: 27% of small business owners report they have had to not pay themselves at least once in the last 12 months to make ends meet, with 10% saying they’ve had to max out their credit cards. 

For those cashflow-positive businesses, they are often the ones managing their invoices well. There are things you can do to get paid faster, such as using an invoice template, invoicing the moment a job is complete, and offering customers a choice of how they pay.

But the rest of us need to play a role in this to ensure our small businesses are getting the money that’s rightfully theirs. 

It’s a new decade. Now’s the time to make a change – small businesses should and can be a central part of growing our business sector and overall productivity. 

The next decade could be a golden era for small business, with compliance and regulation changes that empower small businesses, along with increased adoption of education and upskilling, and improving the flow of money around the economy. 

If we can tackle these three issues and rally behind our small businesses, we’ll be in good stead to bolster the 30% of our economy they make up. Let’s reframe the success of New Zealand SMEs in the thriving 20s.

David Bell is the director of business growth for New Zealand cloud-based accounting software platform Xero