10 Apr 2024

Small business productivity falls sharply in December

6:44 am on 10 April 2024
small business, people and service concept - man or bartender serving customer at coffee shop

The cloud accounting software firm's data shows small business productivity is still lagging 10 percent behind pre-pandemic levels. (file image) Photo: 123rf

Small to medium-sized businesses are hitting tougher market conditions as productivity lags.

The latest Xero Insights report shows small business labour productivity, or output per hour worked, fell sharply in December to 20 percent below its November 2022 peak.

The cloud accounting software firm's data shows small business productivity is still lagging 10 percent behind pre-pandemic levels.

The report, Small business productivity: Trends, implications and strategies, is based on data from more than 240,000 Xero small business customers and looks at small business labour productivity across New Zealand.

Xero country manager Bridget Snelling said the report painted a gloomy picture with the most recent highs now well in the past.

"The decline in productivity over the past 12 months has likely added pressure to the bottom lines of small businesses, making it harder to lift wages for staff and keep prices low for customers," Snelling said.

"Small businesses have been doing it tough post-Covid, working long hours with less to show for it in an inflationary environment."

The data revealed small businesses had an average output of $99.30 an hour in December, falling from a high of $122.60 an hour in November 2022.

"As a nation, we need to be working smarter, because working longer days is no-one's ideal solution. Improved productivity will not only help small businesses lift profits, empowering them to pay higher wages and lower their prices, but it will also strengthen the broader economy," Snelling said.

Businesses in tourism hotspots performed well, but these bright spots were few and far between, according to Xero.

The company called on people to look closely into the benefits of digitisation tools to unlock their potential.

"I'm calling for the government to take action to do everything it can to support the digitisation of the small business economy," Snelling said.

"There are other ways small businesses can think about improving their productivity. These include adopting better work tools, to making sure they have the best tools available for them in whichever industry they are in. And thinking about developing smarter processes and better methods of working and by upskilling their workers.

"And thinking about entrepreneurship, can they rethink supply chains, and can they scale up?"

The research also compared New Zealand's business labour productivity to Australia and the United Kingdom.

"New Zealand small businesses have had the highest productivity of the three countries over the time period," Snelling said.

"However, we still lag well behind global GDP productivity figures, with our overall economy ranking significantly lower than our international counterparts in other OECD nations."

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