Inflation is causing cash flow problems and mental stress for small businesses, according to new research conducted by cloud-based accounting software platform, Xero. This is forcing owners to forgo their own pay in order to keep their companies afloat.

With inflation continuing to hover nearly a full point above the Bank of Canada’s preferred target range of one to three percent, small business owners are being hit hard. According to the survey, which polled over a thousand Canadian small businesses, over half (53 percent) said that inflation has had an impact on their cash flow management in the past six months.

Respondents also drew a correlation between cash flow management issues and physical and mental health problems, with 54 percent reporting an increase in stress and more than a third (35 percent) reporting trouble sleeping due to anxiety.

The only obvious solution for some business owners has been to temporarily stop paying themselves. In companies with no employees other than the owner, 31 percent said they were unable to pay themselves, while 33 percent of companies with two to nine employees reported having to do the same. Others—54 percent—report they had no choice but to raise prices.

Faye Pang

Faye Pang, country manager for Xero Canada, finds the survey results troubling, but also sees reason for optimism. Over three quarters (78 percent) of survey participants said they still have at least some level of confidence in their financial wellbeing.

“I think that speaks to the resilience of small business owners,” said Pang. “It suggests there is opportunity for efficiency gains and improvement.”

Founded seventeen years ago in New Zealand, financial efficiency is exactly what Xero aims to offer to its clients. By saving time and delivering clear insights into cash flow, Pang is confident Xero can provide business owners with enhanced financial acumen that will lead to better business health and decrease the day-to-day stress of running a company.

“We’ve found small business owners often find it difficult to manage their own time, given how much responsibility they are balancing,” said Pang. “With the constant pressures of reprioritizing their efforts and having to balance various facets of their business simultaneously, it can be incredibly challenging to do everything at once.”

With the demands of running a business, it’s no surprise that small business owners are often left with very little time to focus on the financial management aspect of their day-to-day operations.

Another factor that contributes to the deprioritization of financial management is the constant decision making it requires. According to Pang, small business owners are regularly “overwhelmed by choice” when it comes to selecting digital tools, such as accounting software. For example, only a third of small business owners said they are using accounting software as their primary approach to managing cash flow.

“They know there’s got to be a better way, but there are so many options, they’re terrified of choosing the wrong one,” said Pang.

“There’s a lot of great technology out there that can save time, surface insights, and help small business owners spend less time working in their business and more time working on their business. We see the tremendous value that accountants and bookkeepers provide small business owners, considering the importance of having reliable counsel when it comes time to make financial decisions with confidence.”

Of course, Pang affirms Xero is the best bet for most small businesses. And the brand has nearly four million small business clients around the world to back up that opinion.

Photo courtesy of Xero

One of those companies is Goldilocks Goods, a six-person operation that produces the bulk of their products—reusable, sustainable beeswax food wrappers meant to replace plastic cling wraps and Swedish dish-cloths that replace around seventeen rolls of paper towel—in a studio in Victoria, BC.

Co-owner and director of operations, Brett Higson, did exactly as Pang recommends, starting off by finding a local accountant, who then chose to set him up with Xero to help give him a clearer picture of his business’ finances.

Higson’s decision to seek help was driven out of a need to better understand his books. “My decision to hire a bookkeeper when starting the business was so I could focus on building the business without getting bogged down in tedious administrative tasks. We’ve never used paper accounting in Goldilocks.” Now he simply schedules an hour or two each month to sit down in front of the Xero dashboard and quickly examine cash flow, reports, and key analytics.

“With Xero, I can quickly reference everything. Here’s our revenue report. We’re up or down $10,000 from last August. Why is that? Oh, because of a cheque for a custom order. Then I can craft a very succinct email to suggest some changes we can make, some expenses we can tighten up, some things we can do to increase revenue because we did something last year we’re not doing this year. I’m able to click in and out—it’s all right there.”

This is a benefit of a Xero tool called Analytics Plus, a predictive model that provides an additional layer of short term cash flow forecasting; an analysis of a business’ current health and predictions based on custom inputs to minimize the risk of surprises.

“Rather than just looking at the past, Analytics Plus helps business owners look ahead,” said Pang. “It helps you project outwards and think about the investments you might need to make in the coming months and years.”

Photo courtesy of Xero

But the heart of the survey, commissioned by Xero, was to understand and ease cash flow pain points for small businesses in Canada right now. And Pang believes one potential solution is to make digital payments through providers like Stripe, GoCardless, and DirectPay.

According to the report, only one in three Canadian small businesses are actively using digital and online payment gateways—a surprisingly low figure compared to other markets in which Xero operates. This, according to Pang, represents a major untapped opportunity in cash flow efficiency for companies that want to get paid faster.

Working with financial ecosystem partners—both those that small businesses are already using and those they’ve yet to discover—is a key part of the Xero philosophy. Pang encourages her clients to view Xero not just as an accounting software, but as a platform that integrates with and takes advantage of other popular financial tools.

An example of this sort of integration is Hubdoc, a popular app that extracts key information from receipts, bills, and invoices with the snap of a smartphone camera. Xero works seamlessly with the Hubdoc app, eliminating unnecessary steps and clicks to make the process fast, intuitive, and efficient.

“We’re really proud of the products we’ve released in this space over the last few years and plans for future developments,” said Pang.

“We want to help our clients leverage the best technology to better manage their cash flow. I’m really excited about that. It will have a meaningful impact on small business owners and help give them some of their time back.”


The Walrus Lab