Strategic Insights for Canadian Small Businesses from Xero’s Economist

Small Business Magazine Canada
Image Courtesy: Louise Southall

In an interview with CanadianSME Small Business Magazine, Louise Southall, an economist and small business specialist at Xero, shared valuable insights on the state of the Canadian Small Business Economy, drawing from the latest findings in Xero’s Small Business Insights Report. She highlighted the resilience and adaptability required by Canadian small businesses to navigate current economic challenges, emphasizing the crucial role of technology and automation in streamlining operations and fostering growth. Louise’s expert analysis sheds light on strategic approaches for small businesses to overcome the hurdles of declining sales and prolonged payment times, advocating for a proactive embrace of digital tools and customer-centric strategies to ensure sustainability and success in the evolving economic landscape.

Louise Southall is Xero’s Economist. Louise joined Xero in mid-2020 as part of the Xero Small Business Insights (XSBI) team. The XSBI program uses anonymized and aggregated data from the Xero platform to inform decision-makers about the latest trends in the small business economy in order to support small businesses.

She has almost 30 years of experience in economics and business advocacy working with multiple business organizations, councils, government agencies and charities. Her work has covered a broad range of economic and business-related policy issues, membership projects and thought-leadership research. She has a Masters of Economics from Macquarie University and a Bachelor of Economics (hons) from the University of Newcastle.

Based on the latest findings from Xero’s Small Business Insights Report, what are the key indicators for the current state of the Canadian Small Business Economy?

The latest Xero Small Business Insights data for Canada shows that the Canadian small business economy continues to struggle. Small businesses experienced a challenging combination of declining sales and rising payment times during the three months to September 2023. 

Sales have been lower than the same month in the previous year for six consecutive months (i.e. April – September) and fell an average of 5.0% y/y in the three months to September.

After spending the first six months of 2023 broadly trending lower, payment times ticked up again in the three months to September, with time to be paid rising to an average of 29.7 days for this quarter. The one piece of good news is that they did not unwind all the gains and still remain quicker than they averaged in the three months to March 2023.  

XSBI data to December 2023 will be released at the end of April. 

Image Courtesy: Xero

What major factors are currently influencing the downturn in small business sales in Canada? From your analysis, are these challenges unique to Canada, or are they part of a broader global trend?

The major factor dragging sales lower is the current squeeze on household budgets. Multiple interest rate increases by the Bank of Canada over the last couple of years, while needed to reduce inflation, also mean households don’t have a lot leftover to spend in small businesses. The data also shows a clear discrepancy between Canada’s nominal GDP growth and the XSBI results, indicating that what little consumer spending is occurring is not being directed toward small businesses.

This is something we are seeing not just in Canada, but in all the markets where XSBI tracks small business sales performance.

Given the slow growth in small business sales in Canada, especially in comparison to other countries within the XSBI program, what is your perspective on the economic outlook for these businesses?

Canadian small businesses, like many households, will be hoping that the Bank of Canada starts cutting interest rates soon, which should eventually encourage households to start spending again. However, while the Bank of Canada has hinted at potential rate cuts in the Spring, it’s important to keep in mind that it can take up to 18 months before the full impact of any cuts flows through to small businesses. Until then, it’s important that all Canadians do what they can to support their local small businesses – including shopping with them and making sure they pay any invoices on time.

In view of the ongoing economic challenges, how can Canadian small businesses strategically navigate these turbulent conditions? 

There are plenty of steps small businesses can take to navigate the current conditions. Under challenging economic conditions, it’s critical that small businesses use every lever at their disposal to attract and retain an increasingly scarce customer base. This includes rewarding loyal customers with specials or discounts and using the close relationship they have with their customers to make sure they are offering the right mix of goods and services. They can also take steps to improve the chances of being paid on time, such as adding a “pay now” button to invoices, accepting a wide range of payment options and issuing invoice reminders.  

Small businesses can also look to leverage technology to lift productivity and automate as many day-to-day tasks as possible, making it easier for business owners to focus on strategic business decisions and profit-driving operations.

With the introduction of innovative tools like Just Ask Xero (JAX), how do you see technology and automation playing a role in helping small businesses manage their operations more efficiently? How important is the adoption of digital tools for the future success of small businesses, especially in challenging economic times?

Technology is a game-changer for small business owners as it allows them to automate many tasks – some of which can be time-consuming and repetitive. It also allows them to have a more complete, real-time picture of their business, including all the inflows and outflows. Tech adoption then frees up the owner, and their advisor, to think about their business more strategically. 

Xero recently announced the rollout of a new GenAI-powered business companion called Just Ask Xero (JAX) that business owners will be able to leverage to automatically generate accounting tasks using text prompts and voice commands. Our goal is to push the boundaries of technology further to make it even easier for small businesses to manage their bookkeeping.

Importantly, digitalization is something that needs to be ongoing, as innovations – like JAX – are constantly being released to make running a small business easier. 

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