Xero survey shows small business pandemic ‘recovery’ driven largely by inflation

A new report from Xero, Small Business Snapshot: United States and Canadaprovides insight into business performance and the impact inflation has on American small businesses.

The report found that while small business growth appeared to be almost double the pre-pandemic average, this was largely due to higher prices rather than an increase in the amount of goods and services sold. In short, it’s likely that due to inflation and price increases small businesses will settle for market conditions.

The report is part of the new Xero Small Business Insights (XSBI) program, which includes quarterly updates on the small business economy for the United States and Canada, based on aggregated and anonymized data from tens of thousands of Xero customers. He also launched a separate XSBI report:

Inflation is skewing the numbers

The report, produced in partnership with Accenture, tracks the performance of small businesses since 2017, reveals:

“What gets measured gets managed” =Chris

• Sales growth in March 2022 was 11.3% year-on-year (y/y). This is not double the pre-pandemic average growth of 6.7% (y/y), but slower than the 12.6% (y/y) growth recorded in February 2022.
• Inflation rose 8.5% (y/y) in March 2022 meaning that real sales growth, which excludes price effects, was a much slower 2.8% (y/y) (and down from a growth of 4.7 % (y/y) in February 2022).
  • That is, stripping out the effects of prices shows that about three-quarters of the increase in sales in March 2022 was due to higher prices rather than an increase in the quantity of goods and services sold.

“In March 2022, the US was experiencing higher inflation than any other major economy^[1],” said Chris O’Neill, Chief Growth Officer, Xero. “As borrowing costs rise, expenses rise and customer dollars decline in purchasing power, it’s more important than ever for small businesses to take control of their finances. Understanding exactly what is happening to their costs and profit margins at all times will help them better navigate this challenging period.”

Payment times are a more positive sign of stability

Fortunately, the report’s insights contained some better news for small businesses in terms of payment timing and payment delays for small businesses in the U.S. Payment delays generally have a negative effect on cash flow and liquidity. , often causing small businesses to seek expansion and increase their borrowing; as such, payment timing generally reflects how the business’s cash flow works:

• Small businesses waited an average of 23.5 days for bill payment in March 2022, which was faster than the 2021 average of 25.0 days.
• Payments were an average of 5.6 days late in March 2022 after an average of 7.0 days in 2021.

“It’s encouraging to see timely payments to American small businesses; Of course, this helps support cash flow, which is the lifeblood of any business. This may be, at least in part, due to the increased use of electronic invoicing and online payment processes as more small businesses embrace digital solutions,” said O’Neill. “However, small business owners should keep in mind that as inflation continues to rise through the remainder of the year, they need to stay on top of their accounts and work side-by-side with a trusted advisor to ensure they are maintaining cash flow and profitability.”

Amit Singh, Managing Director, Accenture, said: “Small businesses are the heartbeat of the US economy – accounting for more than 99% of all businesses. Understanding and tracking the performance of small businesses, especially during times of economic uncertainty, is absolutely essential for effective economic management and public policy. The Xero Small Business Insights program provides timely insights into the health of small businesses. The metrics in this report have proven the resilience of small businesses in challenging times – lockdowns, social distancing mandates and now unprecedented increases in inflation.”