In today’s challenging economic environment, the topic of small business productivity is dominating conversations everywhere from government halls to newsrooms.
All because the vital role of small business in our economy – and the huge benefits promised by increased innovation and productivity within the sector – has never been more critical. From inflation to high interest rates, when small businesses are faced with obstacles; it’s in everyone’s interest to help.
Because lifting their productivity growth means stronger economic outcomes, stronger communities and greater opportunities for all of us. Which is all the more reason why government and big business alike should be pulling every lever in their support – especially when it comes to boosting digitalisation.
What the data tells us about the small business environment
Xero’s latest Small Business Insights (XSBI), which looks at anonymised and aggregated customer data to track the performance of small businesses, indicated a slowdown in sales, jobs and wage growth during the first half of 2023. Although these conditions still surpass the long-term average, the combination of persistent inflation and ongoing high interest rates is straining household budgets. As a result, this leaves little room for additional spending in small businesses. Simultaneously, owners are grappling with recruitment challenges, resulting in decreased jobs growth. This is forcing them to take more on, which often means getting snowed under by time consuming admin.
But there is good news too. Despite the slowdown in sales growth, small businesses are still selling more goods and services than they were a year ago. All of which reveals a compelling narrative – small businesses are time poor, struggling to recruit and working hard to adapt to the economic environment – but they still have a significant opportunity in front of them. The thing is, this opportunity can only be fully realised with the right tools, policies and technology at their disposal. Economic theory tells us that productivity is key to the timing and strength of any
future recovery – and we know that the most productive businesses will get through complex economic conditions.
The path towards digitalisation
So, how can we ensure Australia’s small businesses are able to unlock increased productivity? The answer lies in facilitating their path towards digitalisation. Xero’s One Step report, which looked at technology adopters vs technology delayers, showed that on average, adopters enjoyed 120% higher revenue and 106% higher productivity than their delayer counterparts. For small businesses, this underscores the importance of harnessing technology, like Xero, to boost productivity, streamline operations, and allocate more time to critical aspects of their business. But the creation of strategic government support measures to help them along the way is crucial in getting there.
Of course, a number of these measures already exist, but there’s work to be done. Xero recently surveyed Australia’s small business owners to gauge their feelings towards the current policies and support they’re receiving from the government. Two thirds of respondents believe current policies fall short in assisting them within this economic climate. When asked how the government could do more, answers spanned three key themes – advice, funding and skills.
Small businesses want more training and education, access to funding and loans, investment in technology and – you guessed it – advice and support to improve productivity. There are many examples – both domestic and international – of policies that seek to address these needs. For instance, Australia’s own skills and training boost that allows 120% deductibility on eligible expenditure.
However, one component of digitalisation often not considered by small businesses is an enabling digital environment. This includes measures like digital compliance, open banking and eInvoicing, as well as supporting regulation spanning everything from digital ID to cyber security and emerging technology.
Global policies to drive small business productivity
Around the world, we’re seeing a common approach to public policy play out. Governments are providing assistance with digital advice, capital and skills; all while enabling a regulatory and digital infrastructure environment. We’re seeing government-funded programs for small business owners and their employees that help empower them to harness the full potential of these tools and provide the skills needed to stay competitive in an ever-evolving landscape. At a slightly deeper level, we’re seeing a set of principles that underpin a strong foundation to guide governments and support their decision-making towards the most effective interventions.
Here in Australia, we have a golden opportunity to do the same. All so we can better target what small business support looks like and create an environment that encourages businesses to digitise. Productivity is the cornerstone for small business success in our digital age.
It’s a driving force behind their success, resilience, and competitiveness. And it’s something that everyone from government to big business should throw their full weight behind – because lifting small business productivity growth means a stronger future for all of us.
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