Interview: How we can all help ease the vicious cycle hurting Aussie businesses

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Sean Aylmer: Welcome to the Fear and Greed Daily Interview. I’m Sean

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Sean Aylmer: Aylmer. This may not come as a surprise to anyone

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Sean Aylmer: in business, but cashflow continues to be a major cause

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Sean Aylmer: of financial stress. What may shock many, though, is just

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Sean Aylmer: how big the problem is becoming, with rising costs also forcing

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Sean Aylmer: Australian small business owners to dip into their personal savings

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Sean Aylmer: or increase prices. Will Buckley is the Country Manager Australia

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Sean Aylmer: for global small business platform Xero, which is a great

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Sean Aylmer: supporter of this podcast. Will, welcome back to Fear and Greed.

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Will Buckley: Thanks very much for having me, Sean.

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Sean Aylmer: Xero has recently released a report on the impact of economic

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Sean Aylmer: conditions on the cashflow of Australian small and medium- sized

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Sean Aylmer: businesses. Just how big a challenge is that at the

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Sean Aylmer: moment, and why?

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Will Buckley: It’s a huge challenge at the moment. I mean, we

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Will Buckley: look to try and keep a finger on the pulse

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Will Buckley: of how small businesses and small business owners are feeling throughout

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Will Buckley: the entire economic cycle. So, in the latest cycle, 60% of

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Will Buckley: business owners have shared that over the past 12 months

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Will Buckley: they have run into some cashflow distress, whether that’s personally

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Will Buckley: or in their business.
So, over a quarter of small

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Will Buckley: businesses are now dipping into their personal savings to keep

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Will Buckley: their businesses afloat, and more than a third say that

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Will Buckley: they’re not even able to pay themselves. So, the cashflow

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Will Buckley: crunch for small businesses is certainly here and we really

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Will Buckley: want to shine a spotlight on how our small business

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Will Buckley: owners are feeling so that we can help the entire

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Will Buckley: small business sector get out of this cashflow crunch and

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Will Buckley: ride some waves into the next economic cycle.

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Sean Aylmer: Okay. So, those numbers you’re talking about, 60%, a third

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Sean Aylmer: of them, I mean, so many of them not paying

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Sean Aylmer: themselves. How do they compare to normal times, whatever normal times are?

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Will Buckley: Yeah. Look, the small business sector is quite diverse and

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Will Buckley: broad and it covers sort of all of your industries,

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Will Buckley: not just primary, secondary and services. But you’ve got all

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Will Buckley: of your trades, you’ve got professional services, you’ve got hospitality,

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Will Buckley: you’ve got retail. So, each of those different industries is

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Will Buckley: going to go through a different economic cycle. But what

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Will Buckley: we’re seeing at the moment and over the past 12

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Will Buckley: months is that this particular rate of inflation that has

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Will Buckley: escalated over the December holiday shopping period has put all

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Will Buckley: of those industries in a pretty challenging position. So, 51%

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Will Buckley: of businesses have shared that they are getting their invoices paid late.

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Will Buckley: And that is amounting to now over a billion dollars

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Will Buckley: of cashflow slowness or cashflow debt in terms of the

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Will Buckley: amount of time it’s taking businesses to get paid. So,

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Will Buckley: it has been escalating as the rate of inflation has

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Will Buckley: been going up over the past 18 months.

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Sean Aylmer: That must have a great flow- in effect. If you’ve got half

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Sean Aylmer: the businesses not paying on time, the business receiving the

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Sean Aylmer: money then may not be able to pay its creditors

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Sean Aylmer: either. And it just sort of becomes this vicious cycle.

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Will Buckley: It makes it so challenging, because when we have the

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Will Buckley: debate and all of the advice from accountants and bookkeepers

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Will Buckley: when they work with their clients is always centered around

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Will Buckley: balancing the best possible cashflow outcome for the business owner

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Will Buckley: and the business themselves. But as you pointed out, quite

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Will Buckley: often that can mean pushing out your payables and focusing

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Will Buckley: on time to get paid on your own invoices. But

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Will Buckley: we do go in that vicious cycle. So, where we

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Will Buckley: want to shine the spotlight is on the roles that

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Will Buckley: everyone can play on helping small businesses, and making sure

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Will Buckley: that overall the economy understands the role that cashflow has

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Will Buckley: to play in keeping the engine room of these small

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Will Buckley: businesses going.
So, as consumers, paying our invoices on time

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Will Buckley: to business owners, and wherever we can, just making sure

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Will Buckley: that we’re communicating and keeping it really clear with business

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Will Buckley: owners so that they can make it easy to pay

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Will Buckley: their invoices as well once their invoices are getting it

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Will Buckley: paid. So, shortening the cycle on how quickly we can

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Will Buckley: get businesses paid, but also helping those businesses then on-

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Will Buckley: pay quickly as well is really important.

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Sean Aylmer: Will Buckley from Xero, I have never thought of it

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Sean Aylmer: this way, but the way you just described that it’s

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Sean Aylmer: kind of like everyone has a role in this. You

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Sean Aylmer: don’t have to have a small business to have a

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Sean Aylmer: role in it. We have painters at our place at

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Sean Aylmer: the moment, so if we pay the painter on time

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Sean Aylmer: and ahead of the due date, that helps the painter

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Sean Aylmer: out, and in a sense it’s my 2 cents worth

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Sean Aylmer: to help the small business sector. I haven’t thought of

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Sean Aylmer: it that way, but it’s like a holistic national problem

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Sean Aylmer: which we all can kind of contribute to the solution.

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Will Buckley: Absolutely. It all comes down to just removing as much

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Will Buckley: friction and time out of how quickly we can circulate

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Will Buckley: currency and money through our economy. So, getting our bills

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Will Buckley: paid as quickly as possible, and it’s not always easy

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Will Buckley: to pay them straight away, and that’s totally understandable, because

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Will Buckley: you might be waiting for the next invoice of your

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Will Buckley: own to get paid. But yeah, it’s across consumers, it’s

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Will Buckley: across small businesses and it’s also across big business as

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Will Buckley: well. Big businesses play a huge role in making sure

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Will Buckley: that their suppliers in their supply chain are also making

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Will Buckley: sure that their invoices are getting paid on time, if

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Will Buckley: not early. So, it is absolutely an entire supply chain

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Will Buckley: challenge that we all should face into as Australians.

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Sean Aylmer: Stay with me, Will. We’ll be back in a minute.
I’m

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Sean Aylmer: speaking to Will Buckley, Country Manager Australia at Xero. Okay.

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Sean Aylmer: I mean, I want to get on to more forward-

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Sean Aylmer: looking things, but I’m just interested. I think you said

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Sean Aylmer: 25% or thereabouts were people putting their savings into their

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Sean Aylmer: small business and a third weren’t taking a wage. I’m

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Sean Aylmer: not sure they were the numbers, but I think they

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Sean Aylmer: were about right. That’s really worrying if people aren’t taking

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Sean Aylmer: a wage. Even more worrying if they’re actually putting their

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Sean Aylmer: money into the business.

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Will Buckley: Yeah, it is. Almost a third are dipping into personal

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Will Buckley: savings and a third are saying that they can’t pay

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Will Buckley: themselves. I mean, it is a big problem. And I

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Will Buckley: guess one of the other stats that we’ve seen in

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Will Buckley: the report that came through is that when individuals go

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Will Buckley: out to actually set up a business, obviously the first

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Will Buckley: thing that you want to do is you want to

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Will Buckley: test out the idea and talk to friends and family

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Will Buckley: and trusted people in your network about going out to

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Will Buckley: start a business. And one of the stats that came

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Will Buckley: through was almost 70% of business owners that are in

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Will Buckley: business today have actually had those conversations with friends and

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Will Buckley: family and been met with a negative response.
So, there

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Will Buckley: seems to be, even in the early days of where

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Will Buckley: people are exploring the idea of going into business, a

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Will Buckley: little bit of a negative sentiment and a conservative sentiment

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Will Buckley: around whether or not that’s the right thing to do.

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Will Buckley: But on the flip side, everyone that has started a

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Will Buckley: business, 60% of those people that we surveyed said that

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Will Buckley: they wish that they’d started sooner. So, there’s perhaps some

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Will Buckley: myth busting that we can do to really make sure

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Will Buckley: that we’re supporting business owners, if they have a great

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Will Buckley: idea and they want to go deep into serving their

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Will Buckley: local communities, to get out and do it and work

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Will Buckley: with people that have done it before and that are

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Will Buckley: there to support them, like accountants and bookkeepers.
So, then

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Will Buckley: we don’t get into the trap of some of these

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Will Buckley: flow down effects of not necessarily being able to pay

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Will Buckley: themselves and dipping into personal savings. So yeah, really tapping

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Will Buckley: into the expertise and experience of people that have been

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Will Buckley: there and been on that journey before that can share

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Will Buckley: some of the lessons that they learned. Because, I mean,

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Will Buckley: what we’ve seen is it’s a continuous learning opportunity for

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Will Buckley: business owners that they go on when they start their business. No

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Will Buckley: one gets it right the first time. So, being able

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Will Buckley: to lean on trusted confidants in your network and people

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Will Buckley: that have done it before is super valuable.

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Sean Aylmer: And presumably that feeds into forecasting cashflow reasonably accurately.

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Will Buckley: It does. And what we’ve seen is there’s no silver

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Will Buckley: bullet to solving cashflow and monitoring it in real time

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Will Buckley: and maintaining a nice healthy balance. But it’s probably the

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Will Buckley: sum of a couple of parts and a couple of

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Will Buckley: tactics that we see that start to add up and

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Will Buckley: become quite significant when they all combine. And it is

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Will Buckley: around setting up a really good invoicing workflow to make

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Will Buckley: sure that you’re getting paid as quickly as possible by

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Will Buckley: using technology to connect to payment gateway for whether it’s

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Will Buckley: direct debits or online invoice payments. Making sure that you

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Will Buckley: do have a realtime view of your cash flow so

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Will Buckley: you can manage what payments are coming in and what

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Will Buckley: payments should be going out.
And then once you get

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Will Buckley: that realtime view of your cash flow at your fingertips,

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Will Buckley: you then have more confidence to understand how much you

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Will Buckley: should be paying yourself, or what’s the right level of

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Will Buckley: investment to start to look to build your business and

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Will Buckley: invest in maybe some equipment or some new products or

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Will Buckley: whatever might be relevant for that business. So, that realtime

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Will Buckley: view of your cashflow is just a really critical piece.

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Will Buckley: And technology’s come a really long way recently to help

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Will Buckley: business owners take that first step with confidence of understanding

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Will Buckley: their cashflow position from the very beginning.

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Sean Aylmer: And I appreciate this is (inaudible) , because you are from Xero, Will. But

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Sean Aylmer: just the idea of using technology to be able to

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Sean Aylmer: do that, it must alleviate a lot of the stress

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Sean Aylmer: from running businesses. And as we’re talking here, I know

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Sean Aylmer: that you guys have done some work also on the

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Sean Aylmer: significant personal impact this sort of thing has on business

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Sean Aylmer: owners. But it must be nice for business owners at

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Sean Aylmer: times to actually have to worry about that a bit less.

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Will Buckley: Oh, of course. I mean, 45% of small businesses admit

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Will Buckley: that they are worried about their personal financial future, and 48%

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Will Buckley: are concerned about the business’s financial future as well. So

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Will Buckley: those are two financial health metrics that we track. But

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Will Buckley: just overall, it’s not just about financial wellness, there are

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Will Buckley: other categories of wellness such as mental wellbeing and making

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Will Buckley: sure that business owners are able to feel comfortable and in

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Will Buckley: control of the decisions that they want to make. And

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Will Buckley: they can feel connected, as connected and as close as

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Will Buckley: possible to reaching the goals that they originally set themselves

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Will Buckley: when they went out to build their business.
So, it’s

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Will Buckley: really important that we connect that financial wellbeing with personal

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Will Buckley: and wellness as well, and don’t just look at the

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Will Buckley: financial side in complete isolation from how business owners are looking

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Will Buckley: and feeling themselves internally about their business. So yeah, lots

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Will Buckley: of positivity and reinforcing. Anything we can do to help

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Will Buckley: business owners feel in control and have that realtime view

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Will Buckley: of their cash flow comes through in the report as

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Will Buckley: being really helpful for business owners feeling comfortable that they

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Will Buckley: can navigate the current economic environment.

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Sean Aylmer: Will, thank you for talking to Fear and Greed.

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Will Buckley: Thank you very much, Sean.

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Sean Aylmer: That was Will Buckley, Country Manager at Xero, which is

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Sean Aylmer: a supporter of this podcast. This is the Fear and

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Sean Aylmer: Greed Daily Interview. Join us every morning for the full

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Sean Aylmer: episode of Fear and Greed, Australia’s most popular business podcast.

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Sean Aylmer: I’m Sean Aylmer. Enjoy your day.