The Impact Of Inflation On Small Businesses: A Conversation With Aaron Doucet, the Partner Success Manager At Xero

Small Business Canada

We got the chance to speak to Aaron Doucet, Partner Success Manager at Xero, who shared his valuable thoughts about his experience working in tax at ConnectCPA prior to joining Xero, Xero’s Small Business Insights Report, its objectives and contribution towards small businesses, the impact of inflation on small businesses, the new product updates with TaxCycle and the impact they will have on small businesses.

Aaron Doucet, CPA, is a partner success manager at Xero and a former tax accountant in Ontario. Aaron joined Xero in 2020 after working in tax at ConnectCPA, an accounting firm fully based in the cloud, and then at MNP where he helped launch a national cloud bookkeeping program. Through his career of driving cloud accounting change, both at the firm level and now at Xero, Aaron has deep knowledge of cloud accounting technology and is passionate about how it can enable small businesses across Canada while also empowering their advisors.

When did you start your career? And how was your experience working in tax at ConnectCPA prior to joining Xero and what are you hoping to achieve through your work at Xero?

I started my career when I worked as a cook at a diner in Ottawa in high school. While this sounds odd to say as a CPA, a major part of my role is coaching accountants on revolutionizing workflows. When I was a cook, I signed for deliveries, received the invoice, and put it on the “accounting pile”. Now I help advise firms on best-in-class workflows, which might include setting up a digital scanner in the back of restaurants so that when these invoices come in, they can immediately be sent to a document management system like Hubdoc. The cook can become the first bookkeeper. Every interaction with an accounting workflow has built my foundation of what I see our industry going towards. 

Joining ConnectCPA as a tax accountant was a truly mind-opening experience for me. I got to see firsthand what a full cloud setup can do for accountants supporting their small businesses. I got to perform sales tax audits without asking my client for a single piece of documentation. Small business owners need to focus on running their business — the more the advisor can do for them by filling that back office functionality, the more time they have to grow their business. 

This has all prepared me for my role at Xero. Coming from a Xero-first environment was the ignition needed to bring me to Xero itself. While I didn’t know it then, it makes sense today. Within Xero I am known as our product fanatic, a title I find honorable. I hope to pass along my passion to accountants across the country and get them excited about the work they perform in Xero so that the passion can be passed along to small businesses across the country. 

I often am asked why move to the cloud, why Xero? It’s a simple answer. Xero was born in the cloud system which makes our flexible financial reports second to none. Being able to tell a story to financials for an SMB is a truly great opportunity.

Canadian advisors embracing the cloud can provide value-added reporting and analysis for their clients.

Now our advisors can pair this with insights into economic trends and metrics to give us a fulsome understanding of small business health in Canada.

What are your thoughts on the Xero Small Business Insights Report, which was released for the first time ever?

The Xero small business insights report has had great success in New Zealand, Australia, and the UK. It’s really exciting to see this launch as a milestone moment for Xero in Canada and the US. Xero’s mission is to be a champion for small businesses in Canada. The report is a key way we’re able to do that, through empowering small businesses with real-time data and insights on their financial health and performance. As a CPA, it’s crucial for accountants to have a deep understanding of the financial health of their clients – especially when navigating tough economic times – and helps us truly advocate for our clients. 

What is the objective of Xero Small Business Insights, and how will they contribute to the support of small businesses?

In Canada, small businesses employ 88 percent of our workforce, make up 99.8 percent of employing businesses, and contribute more than 52 percent of our GDP. Understanding the health of small businesses means understanding the health of our economy – and helps us all navigate the unpredictable economic environment. This information can be used to help inform government policy, and help the progression of cloud adoption in Canada. 

Something as simple as tracking the average days to be paid is a crucial metric for SMBs. We know that cash flow is an important topic, and if advisors can tell SMBs that they will get paid faster when adopting cloud tools, that can become a motivator to move along with the industry cloud adoption. 

What effect did inflation have on small businesses? What are the report’s key findings?

The data gave us a fulsome picture of small business health from January 2017 until March 2022. In Canada, Xero Small Business Insights focuses on three core performance metrics: sales, time to be paid, and late payments, which all help determine the financial health of small businesses. What we saw was that although small businesses had started a slow recovery from COVID – managing 15.4% growth YoY – the impacts of increased inflation hindered that growth. Sales are up a modest 5% year over year. However, when you account for price impacts including inflation, Canadian sales actually fell 1.7% year over year – the only country to experience negative sales when accounting for inflation in all countries where Xero’s Small Business Insights are available.

Another key finding is that late payments – which can cause an SME high financial stress and impact cash flow – improved in 2021 compared to pre-pandemic. SMEs waited 28.1 days to be paid in 2021 compared to 30.8 days pre-pandemic, and late payments averaged 6.7 days versus 8.8 days pre-pandemic.

Having access to these insights and reports in the Canadian market now can also be tied to the adoption of cloud technology. We saw an overall growth in cloud adoption, and it doesn’t surprise me that overall late payments went down at the beginning of 2022. 

What are some of the new product updates with TaxCycle and what is the positive impact some of these new products will have on small businesses? 

TaxCycle has excellent tax optimization. While small businesses won’t use TaxCycle, their accountants will. TaxCycle will help accountants across the country tax plan for their clients, so that small businesses have the best and most strategic tax plan. 

Xero and TaxCycle are better when paired together; we launched an integration last year for corporate tax returns.

Using this, accountants can save time on each return, and ensure that data is accurate. This is a key process in compiling a complete and accurate return. 

Xero and TaxCycle just launched a new integration for Xero and personal tax returns. Think of an Uber driver that is working as a contractor. The income and expenses that the driver has throughout the year can be easily reconciled and coded within Xero. Then at year-end, that can be seamlessly sent over to TaxCycle and show up on their statement of business activities. By enabling these typical disconnected processes into a seamless data flow, the accountant can ensure accuracy across the return for an efficient year-end. 

What specific recommendations would you offer to small businesses impacted by inflation?

Businesses need to prepare to weather many storms. Whether it’s an off-season for a seasonal business, flipping to eCommerce when in-store shopping isn’t allowed during a pandemic, or dealing with rising costs of materials and goods, having strong financial data sets gives you a line of sight into your business performance, your cash flow, and your overall profitability. We have seen price increases at grocery store and many other industries. How can an SMB confidently raise or change its prices without an accurate understanding of how that good or service is performing? You wouldn’t want to raise your price, and it is not enough to recover the impacts of inflation. 

By having a strong financial system and process, SMBs can have more fact-based pricing analysis, to ensure that they are best set up to weather any storm. SMBs with a direct line of sight into cash flow can ensure, regardless of the business system they are operating in, they are ready for it. 

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