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Small businesses are taking tentative steps to rebuilding after COVID and are primed to make use of incentives in last week’s budget, according to February data on the sector.

The Xero Small Business Index rose three points during the month to 102, slightly above the long-term average, and regional managing director Joseph Lyons said the result was cause for “cautious optimism”.

The survey, based on actual data from thousands of Australian small businesses using Xero accounting software, showed the result was largely driven by sales, which increased 15.2 per cent for the month, year-on-year.

The best performing sectors were administrative services, with sales up 24.6 per cent, and hospitality, up 6.7 per cent.

That sales result compensated for weak jobs growth, which fell 1.1 per cent, plus wage increases (up 3.3 per cent) and an increase in the time it takes to be paid (now 23.7 days).

More than half of small businesses in the survey said they had returned to pre-pandemic levels of performance, but Mr Lyons said the challenges would keep coming.

“[The] results are cause for cautious optimism that the sector is on track for a gradual recovery,” he said.

“That said, small businesses are still navigating the ongoing impacts of the pandemic and continued labour shortages, while also facing a fresh set of challenges.

“Those in south-east Queensland and northern NSW are dealing with the aftermath of the floods, while more broadly we’re seeing the effects of inflation and rising costs.”

Last week’s budget measures included several initiatives aimed at small businesses, including 120 per cent tax deductions for spending on training or digital technology.

Mr Lyons said the health of the small-business sector was key to Australia’s sustained economic growth.

“Time and again, small businesses have proved their resilience but they’ll need to remain top of mind for political parties … as we edge closer to an election,” Mr Mr Lyons said.

The Xero Small Business Index takes the temperature of the sector by combining data from sales, jobs, wages and payment times into a headline figure that shows how the sector is performing relative to the long-term average.

Philip King

04 April 2022