Even before Covid, running a small business was a tough, but important job.
Small businesses form the cornerstone of our economy. They contribute more than a quarter of our GDP and employ 29 per cent of our workforce. And when small businesses are profitable, their profits pretty much all stay in New Zealand.
Their recovery is instrumental to the economic recovery of the nation. Equally, re-engineering small businesses so they are set up to thrive in the long term is vital if we want to rebuild the economy for the better.
Xero's Small Business Insights data shows that in small business revenue in April dropped by 41 per cent year-on-year then bounced back up slightly in May to just 22 per cent year-on-year. This equates to a lot of pain that small businesses and their families will be facing.
One positive thing to note is that as it stands now small businesses are largely holding on to their staff. Year-on-year employment was only down 1 per cent compared to pre-Covid levels during the last week of May.
By now we should all know that if we have the means, shopping local and paying our bills on time are things we can do right now to support New Zealand's economic recovery – especially our small business recovery.
But how can we support small businesses to grow in the long term?
Personally, I believe Kiwi small businesses have the ability to contribute more than a quarter of GDP. By helping them grow we help to create a more resilient and diversified economy for all. This also helps stabilise the economy, meaning we are better prepared to withstand global economic shocks.
I saw first-hand that the lockdown motivated quick thinking, fast innovation and made many Kiwis small businesses realise how rapidly they could change when they need to. What would happen if we harnessed this pace of change ongoing?
Nearly three quarters of SMEs made some kind of change to their operation during lockdown or since Covid-19. For example, take my local free-range chicken farm Olliff Farm. They embraced e-commerce during lockdown to survive and keep selling their eggs. With a campaign to "Save our Girls" they flipped their business model from selling eggs each week to restaurants, to meeting the overwhelming demand of the general public.
The team at Olliff Farm could continue providing fresh eggs daily through an online store, maintaining a revenue stream. Now they are operating in alert level 1 with two revenue streams, but even they admit they know they could streamline this process and use different tools to make life easier
I know of countless stories of small businesses, like Olliff Farm, that leveraged some form of technology to help their business survive during lockdown. Now the opportunity is to use cloud-based technology not just to survive but to thrive for the long term.
It's true that necessity is the mother of invention. But what are we inventing?
Many SMEs are still in survival mode, but we'd be wise to create systems that help them grow for the long term when they are ready. You see when SMEs grow they pay more tax in NZ and employ more Kiwis.
That's why I've been talking to the Government about the value of a fiscally neutral incentive that supports SMEs to implement cloud-based business tools.
The incentive would support SMEs to be more efficient and productive. Meaning they are more profitable and pay more tax. This means the Government actually makes more from the increased tax take than the incentive they paid, making it a fiscally neutral incentive.
We are confident in this approach as it's backed by economic modelling. Before Covid-19, the New Zealand Institute of Economic Research concluded that a 20 per cent uptake in cloud-based technology would deliver huge productivity gains and contribute up to $6.2 billion in annual GDP growth for New Zealand's economy.
You just need to think of a retailer to understand that.
Diversifying a brick and mortar retail store to include an e-commerce store and embracing online sales helps connect local business owners with a wider customer base. It increases who is looking at and buying their products and allows them to understand what stock they have all the time. Couple this with a presence on social media and they are transacting in the 21st century.
Helping small businesses be more productive serves us all. By re-engineering the small business systems, we have the opportunity to rebuild a strong, stable and diversified economy.
In doing this we can help small businesses recover and thrive long-term, and hopefully make being a small business owner a little less tough.
- Craig Hudson is the managing director for New Zealand and the Pacific Islands at Xero.