Xero's Small Business Index

Xero has published its Small Business Insights from its economists consisting of anonymised and aggregated data drawn from Xero's 3.7m+ subscribers. This provides a quarterly analysis of the small business economy in the UK and globally. The data is available as an entire data set (with breakdowns by sector and region) and you can also read the executive summary. 

As you will be aware, Xero is the online accounting software perfect for small businesses - providing support on accounts, payroll, workforce, and project management to over 970,000 UK subscribers. In 2021, small businesses in the UK transacted £963bn annually through Xero which is 1.9m transactions a day worth £2.6bn. XSBI feeds into the ONS data and also is a helpful data set to nowcast GDP figures. Find out more about how it does that. 

You'll see that this data includes full analysis from February 2023 given the internal update Xero had to its programme and the XSBI hiatus since Feb. However, we have focused its analysis on the last quarter's results. It shows that an improvement in jobs growth has been largely offset by ongoing softness in sales and a slight deterioration in wages and payment times.

The XSBI found that:

• Jobs rose by 1.1% year on year (y/y) in June.  This is the first time that job numbers have increased in the small business economy since March 2022.
• Sales rose by 7.6% y/y in June – the highest for four months.  However, once adjusted for inflation (as measured by the Consumer Prices Index including owner occupiers’ housing costs - CPIH) this represents a more modest growth of 0.3%. In retail, sales declined -1.0% (before adjusting for inflation). 
• Sales averaged growth of just 3.3% y/y in the three months to June, down from an average of 8.7% y/y in the three months March and
  15.2% y/y over the whole of 2022. The weak sales growth is disappointing but not unexpected given that the UK economy barely grew in the December and March quarters. The June quarter GDP numbers are not released until August 11. But crucially, as an early indication, these persistently weak sales results suggest economic conditions have not substantially improved in the June quarter.
• Wages rose by 3.6% y/y in June.  This suggests a real-term decline of 3.7%, once adjusted for CPIH inflation
• In terms of sectors, construction saw the strongest sales growth, up 8.7% y/y

Late payments fuel small business borrowing - XSBI data shows that small businesses continue to experience payment delays.

• Time to be paid averaged 29.7 days in the three months to June.  This is the longest quarterly average since September 2020. 
• Small businesses are now paid 7.6 days late on average.  This is 1.2 days higher than the 2022 average.

Xero's new XSBI Research Paper establishes a statistically significant association between late payments and small business borrowing.  If late payments increase by one day, small businesses borrow an extra 1.1% a quarter.  This provides firm evidence that late payments fuel small business debt.  It creates an added imperative to find solutions to the late payment ('unapproved debt') crisis.

Separately, finance professionals in a survey on the latest economic conditions by ACCA and IMA of accountants and CFOs across the globe suggests that the rebound in global economic confidence has stalled, but no downturn in the form of a global recession is imminent. The survey suggests that the sharp rebound in global confidence in the aftermath of Russia’s invasion of Ukraine has ended.

Read the full ACCA Professional Insights Global Economic Conditions Survey.