There is no doubt that off the back of the coronavirus lockdown, many businesses are struggling. The small business sector, in particular, has been hit hard, suffering twice the impact with regard to job losses as big business, according to data released by accounting platform Xero.
First launched in 2017, the Small Business Insights research, delivers regular insights into the sector and is based on aggregated and anonymised data from Xero’s almost one million Australian users. It delivers a snapshot on the health of the sector and has been used to help shape thinking and inform government on Australia’s small business economy.
Data released in June shows the number of casual jobs in the small business sector fell 25 per cent over March and April, while the total number jobs (including full and part time) fell 13 per cent in that time.
Unsurprisingly, the sectors worst affected were hospitality, which recorded a fall of 40 per cent in employment, and arts and recreation with a 29 per cent fall. The most resilient sectors were construction (1 per cent fall), transport (3 per cent fall) and professional services (4 per cent fall).
Cause for optimism
Some businesses, though, are thriving.
Trent Innes, managing director of Xero in Australia and Asia, says the businesses that have continued to perform strongly are well positioned for the future are the e-commerce, digitally based businesses, and those that have reoriented their business model to access and engage new audiences outside of their traditional customer base. Businesses were already on the journey to digitisation, he says, but COVID-19 has accelerated this.
The challenge for directors and business owners
As firms move to recovery mode, business owners and directors must take stock and have an honest look at how their business fared during the crisis.
- Did they have the information and systems they needed to quickly assess and react to the situation?
- Were they clear on their transferable capabilities and the levers available to pull?
- Were they able to continue operating and/or pivot to access new audiences?
- Are their missed opportunities?
- How has the operating environment changed?
- How have consumers changed?
- How can they be better prepared for potential future challenges?
Innes, who in 2017 won CEO Magazine’s Managing Director of the Year, says many boards and business leaders will be re-evaluating their business models to ensure they remain relevant and can support the next phase of the business.
The organisations that will thrive are the ones that can find clarity in the uncertainty and successfully manage the factors they do have control over. Innes spoke to us about what business leaders can do to improve the resilience of their business for the post-COVID world.
Building a resilient business for the future
1. Invest in technology
A recent Xero Small Business Insights report, based on pre-COVID data, showed the impact of technology spending on small business outcomes, with businesses who adopt and invest in technology being 68 per cent more likely to see growth. However only 1 per cent of small businesses were investing their turnover into tech.
We’ve been in good times for a long time and the impetus to innovate and invest has not been there, says Innes. However during the crisis, technology solutions have helped businesses stay in touch, pivot and access new customers and markets. He believes there’ll be an increase in technology investment and says small business is much better placed than big business to access and deploy new technology quickly.
Online tools for small business
While online conferencing tools like Zoom have been a lifeline for businesses of all sizes, more small businesses are starting to appreciate the tools available that can help them run their business more effectively. From managing cash flow, simplifying bill payments, enabling the digital signing of documents, automating approval processes, recovering debt, completing compliance work, onboarding new clients, and acquiring and engaging new customers, the implementation of the right technology can help small businesses increase revenues, lower costs, improve payments times, streamline processes, improve efficiency, and meet the demands of a remote workforce.
Xero itself was the first small business accounting software provider to offer the ability to send e-invoices in Australia. To help drive adoption, the Australian Government has pledged to pay invoices of up to $1 million in as little as five days or pay interest. With Xero’s data showing that Australian small businesses are on average paid 4.6 days late, e-invoicing will have a major impact on cashflow, the lifeblood of small business.
Xero’s platform also connects users to an app marketplace with over 800 third party apps. Machine learning is being used to suggest appropriate apps based on the information provided by the user and Xero’s GM of Ecosystem Nick Houldsworth says, “We’ve seen a 50% increase in people searching for cash flow apps from February to April this year, so we know making it easy to access the right technology is more important than ever.”
We are heading towards a tipping point, says Innes. Where previously a lot of these things were a ‘nice to have’, they’re now becoming a ‘have to have’, where you really must be on a digital platform to interact with your customers, to interact with government agencies, to interact with staff and the people that support your business.
So at a time when many businesses are considering de-prioritising technology projects as they deal with the more immediate threats of cash flow, cost management and business survival, those that do invest are more likely to set themselves up for future success.
2. Ensure clear oversight of financial position
Businesses with clear insight into their financial position can make adjustments quickly, says Innes. When your revenues suddenly become unknown, you need to be able to manage your expense items and cash flow gap as best you can.
In the three years since Xero began tracking data at an aggregated level, on average 50 per cent of businesses are cash flow positive in any given month. In times of prosperity it’s fine to operate month to month, says Innes, but in scenarios like the one that has played out over the last few months, many businesses have come under a lot of pressure.
Analysis of revenue from March and April shows there’s been an 11 per cent decline in revenues year on year, with hospitality falling the most at 51 per cent, and arts and recreation at 49 per cent.
With economic uncertainty looking set to continue for some time, having accurate financial information available in real-time makes it a lot easier for businesses to control their cash and recognise the levers available to them.
3. Prioritise values over culture
In a similar way to profit (or loss) being an output of the business’s activities, culture is an output of all the small moments of truth in an organisation, says Innes. “People try to manufacture culture, but culture is an output of purpose, behaviours and values.”
“Values don’t need to be explicitly stated, but they do need to be explicitly demonstrated,” he says. The values of the business must be reflected in the behaviours of its leaders and its people.
Unlike rules and procedures, which may not scale and can damage employee engagement, values can scale as the business grows. “If you get employees engaged and believing in your values and living the values, they’ll make good values-based decisions about your customers, themselves and the business.”
Innes, who joined the company seven years ago when there were 30 staff and has overseen its growth to over 700 employees, says if you look at the companies doing well, there’s a disproportionate number with a great workplace culture. One of the key factors, he says, is hiring for the right fit in terms of attitude and values. He believes this also leads to a diverse and inclusive environment.
But while it takes time to build a strong culture, it can be killed very quickly, and when a business starts running culture workshops it can be a sign that they’ve lost their way. When the culture is not where it needs to be, leaders should instead reflect on whether the organisation’s values are being modelled and rewarded effectively across the business.
4. Trust and empower your people
People have adjusted quickly to new ways of working and many won’t want to go back to the way things were. Where business leaders may have previously been doubtful their workforce could be productive and accountable while working remotely, COVID-19 has proved it can be done. And given we are now better connected than ever before, this represents a significant opportunity to redefine the way we work.
Innes says he is a strong believer that if you empower people, most will pay you back. The large majority of employees want to have a productive day at work and contribute. And the ones who don’t will get found out.
Businesses looking to attract and retain good employees moving forward, will need to trust employees and be flexible in their approach to the work environment.
5. Re-evaluate your strategy
No matter what size business you are, you need a clear and articulate strategy for the future. “Strategy at the end of the day is about making choices,” says Innes “about where you invest your capital, be that money or time. And then it comes down to whether you have the right people who can articulate what you want to achieve and execute on it. Strategy, people, execution.”
Innes says that while many businesses will not survive, it may be the case that their business model wasn’t right and COVID-19 has exposed this more quickly. “It’s a great time to reflect and ask ‘is my business model suitable and sustainable for the environment we now find ourselves in?’ and to have an honest look at whether you need to pivot, not just for COVID times but for the rest of time.”
Off the back of any period of uncertainty it is critical for directors and business leaders to clarify what’s important and review how they want to take the business forward.
The next generation of small businesses
There will be a contraction in the sector. “The reality is a lot of small businesses disappear each year anyway, and a lot get created, it’s a net/net effect”. But Innes says the small business sector is immensely resilient and he is confident we will see a huge wave of innovation off the back of this.
Historically after an economic downturn, there is a spike in business creation. In 2008, in the heart of the GFC, new business creation dropped to 10,000 businesses. The year after it jumped to 65,000. Innes says that given we’ve never seen anything of the scale of this pandemic before, he expects to see a huge jump in business creation over the next 12 months and is fascinated to see the innovation that will be spawned.
“The reality is, the quickest way back to economic prosperity in this country is going to be through small business. We need to get confidence back up and support [the sector] as best we can.”
Innes, whose father was a small business owner, speaks passionately about helping get the sector back on its feet. “Small business is where true innovation comes from, it’s where the next generation of jobs come from, it’s where economic prosperity comes from, and it’s also [part of] the Australian culture deep down. We can play a massive part in helping with the recovery.”