It takes passion and perseverance to run a small business. I saw this first hand growing up in my family’s small business in rural Canada. Now, more than ever, running a successful small business takes insight. Historical trends and timely market data can, when used effectively, help small businesses and their advisors adapt to complex present realities and prepare for future ones.
Today, we were pleased to announce we’re extending the long-running Xero Small Business Insights program, and we will offer quarterly updates on the state of small business in Canada and the United States. This builds on our existing Xero Small Business Insights program for Australia, New Zealand, and the United Kingdom, where we’ve seen these insights play an increasingly significant role in informing policymakers and enterprise partners about what is happening in small businesses.
As in our other major markets, small businesses play an outsized role in the wellbeing of United States and Canadian economies and communities. In the United States, small businesses make up 99.9 percent of all businesses. In Canada, small and medium businesses employ 88 percent of the workforce and contribute more than half of the country’s gross domestic profit. In both countries, small businesses faced a series of shocks over the past few years, from United States-China trade tensions, through the pandemic to the current-day inflation crisis.
By creating insights that are relevant and easy to understand, we hope to help contribute to better policy outcomes that deliver improved profitability and growth for small businesses. In our very first Xero Small Business Insights special report for this region, Small business snapshot: United States and Canada, we tapped into aggregated and anonymized data from tens of thousands of our customers across the United States and Canada. The report highlights how resilient small businesses have been over the past five years and how they are dealing with the latest challenge of rising global inflation.
Inflation impacts starting to bite
Having only just started to recover from the pandemic, small businesses are already feeling the pressure of high inflation. Canada’s price-adjusted sales contracted by 1.7 percent year-over-year (y/y) in March 2022, adding challenges already posed by a slower rebound from pandemic-induced supply chain shutdowns and protests than the United States.
Meanwhile in the United States, small business sales grew in real terms by 2.8 percent y/y in March, despite operating in the highest inflation environment in the G7. As central banks continue to increase interest rates worldwide, small businesses in the United States and Canada will need to continue to focus on their profit margins and the impacts of their customers’ declining spending power.
Payment times a more positive sign
On a more positive note, the Xero Small Business Insights data also reveals more encouraging trends in two other metrics — both related to cash flow.
Since mid-2020, small businesses in both countries have seen an ongoing improvement in payment times:
- In the United States, payments took an average of 23.5 days in March 2022, compared to an average of 25 days in 2021 and a pre-pandemic average of 27.1 days.
- Canadian small business payments also improved, but to a slightly lesser extent, taking an average of 27.5 days in March 2022 after an average of 28.1 days in 2021 and nearly 31 days before the pandemic.
In both countries, small businesses also experienced improvements to late payment delays. Prolonged government stimulus packages have likely played a part by introducing more liquidity into markets. So has the accelerated uptake of digital payments and online invoicing solutions amongst small businesses.
For small businesses in the United States and Canada, this points to future challenges. As inflation rises, we can expect to see more pressure on small business cash flow in the coming months as they try to juggle rising expenses and price settings that allow them to remain profitable.
Strong insights strengthen small businesses
Strong and consistent insights can help small businesses navigate complex, rapidly-changing environments. The Xero Small Business Insights program has gained momentum in its other markets, and we’re rounding it out by extending its reach to include the United States and Canada. The more timely intelligence small businesses can get, the stronger they — and the economies and communities they support — can become.
Learn more about the Xero Small Business Insights program here.