The retail, construction and agriculture industries continue to be most affected by the current downturn. FIle photo. Photo: 123rf
With sales continuing to decline, small businesses are being forced to keep wages down and cut staff to make ends meet.
The Xero Small Business Insights report for the September quarter shows sales fell 2.7 percent year on year, following a 12 month trend of flat or declining sales.
Construction, agriculture and retail continue to be the industries most affected.
Wage growth slowed to 2.8 percent as a result, but that was fuelled by less than a third of businesses.
Xero country manager Bridget Snelling said cost of living pressures have stopped people spending and it was hurting businesses.
"We also see that a third, so that's 31 percent of small businesses are actually downsizing their workforce. This is the highest proportion of businesses reducing their workforce since early 2020, when the lockdowns started with the pandemic. This is also being driven primarily by hospitality, manufacturing and construction.
"I think anecdotally we've all heard that there are many businesses going through these changes and just like big business, small businesses are having to to make quite significant changes to keep their lights on."
Snelling said small businesses did not have the cash reserves that bigger companies did, so it was harder to manage declining sales.
"We've seen small businesses have held their own in previous quarters where they've still been employing, and they've still been able to offer those wage increases. But now with sales continuing to fall, they're at the point where it's it's much harder to hang on, so are obviously having to take measures to reduce workforce, to cut their costs, to continue operating in business."
She said it was not clear when there will be a turnaround.
"I think generally business confidence is up across the board simply because of things like the OCR reducing.... often we see a lift and with the Christmas period coming up and retailers will be hopeful that gives them a boost.
"But it is clear there is no obvious light at the end of the tunnel right now until we see that sales metric tick up. I think it's going to remain pretty tough for small businesses for a period yet."