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SMEs eyeing a cautious recovery: 60% have moved away from blanket cost-cutting

After two challenging years, small businesses may be eyeing a cautious recovery going into 2022. Xero’s small business trends report 2022 takes a look at ten of the biggest considerations on the minds of small business owners and their advisors.

Based on surveys with business owners in North America, the UK, Asia, Australia and New Zealand, the report notes that 60% of small business owners have moved away from blanket cost-cutting. Experts believe this may signal a readiness to invest in growth.

What the experts say

“While unnecessary and frivolous spending has reduced and will stay low, we can see some increase in digital expenses like marketing and ecommerce,” says Ya Wen How, an accountant at AccountServe, who participated in the report.

Alan Kirby, an accountant at ABI (Accountancy and Business Improvement), adds that some small business owners may benefit from pent up demand as markets reopen. “Smart businesses will go after that demand but they need to take a good look at how they market themselves. Increasingly, they’ll need to invest in online campaigns.”

However, David Stephens, an accountant at Stephens Financial Services, notes that there may be productivity headwinds for recovering businesses. “Supply will bounce back slower than demand. Businesses may find it difficult to secure inventory, rehire staff, and get back to where they were before the pandemic.”

Once bitten, twice shy

Given what most businesses have been through these past two years, any recovery will start off slow. Rebounding confidence will be limited by cash flow, with 56% of businesses still feeling unsure about their liquidity. Meanwhile, supply chain issues continue to slow down 38% of businesses. However, the report shows how businesses are dealing with those issues while moving back into growth mode.

Takeaways for small businesses

There are a few things small businesses can do to help support their recovery according to Xero’s small business trends report:

  • Be prepared to take advantage of the pent-up demand from customers by looking into different ways to market the business, especially online
  • Use technology to get a in depth understanding of your business’ cash flow, supply and staffing so you can bounce back quicker and stronger
  • Keep a close eye on cost inflation and adjust prices accordingly
  • Structure service contracts to take an upfront deposit from customers, so your cash flow doesn’t run dry
  • Try not to be afraid of investing in the business, as that may be the best way to prepare it for recovery

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