A lump of coal as Christmas cash ow worsens for rst time - Xero
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Small Business Insights
February Reporting period: Dec 1, 2018 - Dec 31, 2018 Page 1 of 5
Monthly commentary Demian McLean
A lump of coal as Christmas cash
ow worsens for rst time
We’re well into 2019, but you may have noticed that Christmas 2018 has Cash flow
received an unusual amount of media attention over the past few weeks.
That’s because two key economic indicators – December retail sales and
business confidence – came in surprisingly weak for what should be an
55.57 %
of Australian small businesses were
upbeat month in Australia.
cash flow positive in December
2018
Adding to these worrisome signals is the latest economic reading from
0.97 p.p. -1.17 p.p.
Xero Small Business Insights, which examines aggregated data from
hundreds of thousands of anonymised subscribers. It reveals that positive Month on month Year on year
cash flow in December posted the first annual decline in at least four years,
breaking a multiyear uptrend for small businesses across the country. Getting paid
33.41
days on average for Australian
small-business invoices with 30-day
terms to be paid in December 2018
-1.97 % -2.28 %
Month on month Year on year
Small Business Insights
February Reporting period: Dec 1, 2018 - Dec 31, 2018 Page 2 of 5
Cash flow measures how much money is coming in the door versus how
much is leaving, and it’s the lifeblood of any business. In December, some
55.6% of small businesses were cash flow positive, a high point for the
year. But that was a drop from one year earlier: In December 2017, the
figure for cash-flow positive businesses was higher at 56.7%.
A one percentage-point difference may not sound like much to get excited
about. But it’s the directional trend that’s important. What happened in
2018 to halt a steady annual increase in positive cash flow? And what does
it tell us about the 2019 outlook for small business, which employs 40% of
Australian workers and has been called the engine room of the economy?
Getting paid
In looking for answers, it helps to examine payment times. We know small
businesses regularly endure late payments, which crimp cash flow. At
points in 2018, the average payment on a 30-day invoice arrived as much
as nine days late. But in December, payment times were best on record at
Xero: The average business was paid just four days late. So it’s hard to
blame late payments for the decline in cash flow.
What does a look at the broader economy tell us? NAB’s monthly business
survey found that business conditions fell sharply in December, recording
the largest drop since the Great Financial Crisis. And the Australian Bureau
of Statistics reported that retail sales fell in December, missing economists’
expectations.
“Our local trade was down, specifically in wholesale,” said Kim Pierce,
founder of skin-care products maker Babe Australia, based in the
Melbourne area. “Given the slower local wholesale throughout 2018, we’ve
been focusing and investing in our exports, which actually lifted us to an
Small Business Insights
February Reporting period: Dec 1, 2018 - Dec 31, 2018 Page 3 of 5
overall increase in Christmas sales. Exports will drive our strategy for
2019.”
Why are local shoppers closing their wallets? Some economists have
pointed to the fall in Australian house prices, which has dented consumer
confidence.
“While it is true that retail has been underperforming relative to the rest of
the consumer basket for a while, it’s clear that the correction in dwelling
prices is now spreading to the broader economy,” CBA senior economist
Gareth Aird wrote in a recent note to clients.
Weaker home prices can spook not just consumers but the many small
business owners who have pledged their homes when taking out business
loans. A drop in house prices can shrink the amount of equity available to
finance or support their ventures. And the slide in Australian home prices
over the December quarter was the largest since the early 1980s,
according to CoreLogic.
While it’s too soon to say whether the drop in real estate will produce
sustained pressure on small business cash flow, it’s a metric that bears
watching at Xero Small Business Insights. Check out the full complement
of small business data on this site, including Hiring People and Trading
Overseas, and be sure to visit early each month for an updated view of the
small business economy.
Small Business Insights
February Reporting period: Dec 1, 2018 - Dec 31, 2018 Page 4 of 5
Demian McLean
01 Episode four of XSBITV | Hello
11.02.2019
Blooms
In the fourth episode of Xero Small Business Insights TV, we join with Lu
and Lauren, the Co-Founders of online florist Hello Blooms. The pair
discusses how they prepare for their busiest day of the year, Valentine’s
Day.Small Business Insights
February Reporting period: Dec 1, 2018 - Dec 31, 2018 Page 5 of 5
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