From XU Magazine, 
Issue 32

Rachael Powell, Chief Customer Officer, Xero

It was great to catch up with Xero’s own Rachael Powell at Xerocon London 2022...

This article originated from the Xero blog. The XU Hub is an independent news and media platform - for Xero users, by Xero users. Any content, imagery and associated links below are directly from Xero and not produced by the XU Hub.
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XU: Recently we’ve seen the release of the Xero cash flow crunch report in conjunction with Accenture. Could you tell us a little bit more about what that is and what it’s looking to do?

RP: Sure. So I’ll just take a step back and talk about the XSBI, the Xero Small Business Insights program. We’ve launched this in Australia first, followed by New Zealand and the UK. It analyses aggregated and anonymized data that goes through our platform so that we can assess some of the trends that are happening in the small business economy. Now, that became incredibly important for us to help advocate for small businesses, particularly when the pandemic hit. So because we have real time information, like trillions of dollars of transactions are going through our platform, we actually had more recent information about what was happening in the small business economy than the government.           

Then what we’ve done is we’ve actually launched the Small Business Index. So the Small Business Index is based on the XSBI data. And the Small Business Index basically helps us ascertain on a monthly basis, whether the small business economy in these three regions is performing better or worse than average. So if it’s over a 100, it means that it’s doing better than average. If it’s under a 100, it means it’s worse than average. And it’s based on four metrics. It’s based on time to be paid. It’s based on sales. It’s based on wages. And it’s based on employment growth for small businesses. So its XSBI first, then we launched the index. The Index is a combination of these four metrics that gives us a snapshot, in a single number, of how small businesses are performing.

It’s been really interesting in COVID because you can actually see the index going up and down with lockdown, open and close. So then what we’ve done is we’ve actually started to do some bespoke reports off the back of the XSBI information. And the latest one is cash flow reporting. And that’s become even more important as we are now navigating different environmental challenges. So it’s not just the pandemic, but it’s also rising interest rates, inflation in this environment, you’ve got Brexit as well and economic uncertainty. 

So the cashflow report actually, is a lot of research with small businesses and based on the information that flows through our platform. We can see that across the three countries, on average, small businesses are cash flow negative for around a third of the year, which means that all of the tools and all of the products that we’re working on, like cash flow forecasting in Xero Analytics Plus, that Anna spoke about in the product keynote today, helps more businesses know what’s coming so that they can plan for that.

XU: One of those stats that you’ve just pulled out in terms of being a third of the year on average, having a cash flow negative position, obviously creates a lot of stress and anxiety. And that’s something that we’ve been talking about Xerocon at the moment. With that, what’s Xero’s stance on that in terms of now you’ve identified this issue within the report and we can actually see there’s a real problem there for businesses which creates the knock on effect of not just having cash in the bank, but everything else that goes with it. What was your immediate reaction of actually we need to do something about this and what can we do in the position that we’re in?

RP: Well, one of the things that I think that we’ve got a responsibility to do is make sure that we are advocating for small business by working closely with the government, with the right people like small business minister and the like, to ensure that they are aware of this and they’ve got it on their radar so that they can even implement policies. So one of the things for small businesses is time to be paid like I said. It’s really important for cash flow. It’s one of the metrics that makes up the Small Business Index. So we can see where the time to be paid is slowing or whether it’s accelerating. But if the government doesn’t help to apply pressure on big businesses who have to pay small businesses, then this issue will continue. And I think as the economic crunch gets probably worse before it’s going to get better, some of these small businesses, they don’t have the luxury that big businesses have to be able to get access to debt to be able to help them through the cash flow negative months.    

So they really do have to work with their advisor. And we know that small businesses that do have an advisor are more likely to survive those peaks and troughs of cash flow because they’ve got somebody advising them on how to make sure that they’re set up for that in the future. So we are working a lot with government to make sure that we’re having the conversations. You may have heard Alex mention this morning when I interviewed him on stage that all of the candidates that are running for government at the moment in the UK, none of them have mentioned small business. So there’s more work to do to be able to make sure that we’re bringing this to the attention of the right people.

XU: On that point, I don’t think these specific stats were included in the report, but this was something else that Xero was looking at. There was a piece of work that was done and around about 55% of large organizations that you were basically liaising with admitted that they paid small businesses late. They’ve admitted that themselves. And 78% of those also said that they realize the impact that it has on small businesses, but obviously they’re still doing it. So it’s a huge problem and probably needs something like government intervention there. So when Alex was talking on stage earlier about effectively lobbying the government to actually do something on that, is that something that he’s really picking up the mantle to actually take forward in his new role as Xero MD?

RP: So these businesses are taking it upon themselves to restrict the payments to small businesses knowing full well that it’s going to have an impact on them and put a lot of stress and anxiety on small business. We’ve got a strong government relations person here on the ground in the UK and she’s working to make sure that we get the message and data across that is coming from the results of XSBI. 

XU: As we know anything to do with government is not a quick turnaround in terms of getting them to take action and actually implementing that. In terms of the more immediate side of it one of the things that Xero has is the fantastic ecosystem around it and lots of apps and companies that link in with that. What are the things that Xero are doing right now and that are actually already out there that people can access to help cash flow problems? And then what kind of things have you got coming up to actually further develop that with the ecosystem that you’ve got around Xero?

RP: So the first thing I would say is that we’ve launched Xero Analytics which helps companies forecast their cash flow and track their financial performance. We also acquired Waddle, which Steve spoke about today, which is invoice lending. And if you think about some small businesses, I often think about manufacturing, like businesses  that have these massive peaks and troughs in terms of the cash in and the cash out. So we look at particular verticals and we say, “How do we make sure that we can help those?” Because if a manufacturer is providing materials to a supplier for a project and they’re waiting for payment on those.

They’re big. They’re big invoices they’re sending out. But if it’s a 30 day payment, they’ve got to buy the raw materials to continue manufacturing for the project. So that’s where something like Waddle comes in handy, because what Waddle can do is make it easy for small businesses to access invoice finance lenders like NatWest in the UK, to manage that cash flow trough that they’re going to have until that payment is in. So that’s another thing that we’re doing. And then Analytics Plus, which is our advanced version of Xero Analytics. It has more customisations, longer term  forecasts and actionable insights, drawing on powerful AI that uses data from the customers’s Xero account. They’re able to actually get access to more information with more power and more ability to make the right decisions at the right time.

XU: One of the things that we’ve heard is around some of the changes in reporting that Xero is doing in terms of obviously doing away with some of the old coming in with the new. Within there as well, one of the questions that I see a lot in terms of the Xero community and working within that is what you have is you have Xero at the moment in terms of the reporting that you have within Xero and you then go out and obviously you’ve got third party apps which are doing a more advanced version. How far is Xero expected to develop their internal features before people should start to look at apps in the ecosystem?

RP: We’ve got three waves of our strategy. The one is core compliance and accounting and making sure that we have all of the elements that provide minimum viable product for accountants and bookkeepers and small businesses. So I think about that in terms of the two things that are most meaningful for small businesses, payroll and bank feeds, then the two things that are most meaningful for accountants and bookkeepers, tax and practice management. Then wave two is really about how we’re helping to actually build the small business platform. And that’s where we look at the apps in our ecosystem. You’ve seen that we’ve bought Planday and we’ve made another couple of acquisitions that help with building the small business platform. So eInvoicing with Tickstar and that sort of thing. But what we won’t do is we won’t go and acquire adjacent apps that have bespoke for particular niches, because we don’t need to. We’ve built this open API and it gives all of the different verticals the option to actually access the apps that are in the ecosystem that are relevant to them.     

So our focus is first and foremost, focusing on what we do as core compliance and accounting, and then the small business platform leveraging the plethora of apps that are in the ecosystem. And then the third is then the data and insights piece. So how can we become the most trusted and insightful small business platform by leveraging all of the data that’s coming through our core proposition? As well as the apps that these small businesses are connected to, making sure that we’re providing them with all of the data and all of the insights that help them with the next best action for their business.

XU: I know there’s a second part of the cash flow report to come out in the future but over the next 12 to 24 months, what else are you doing alongside Accentureand other people in terms of utilizing the data? You’ve got building out those reports, looking at where those crunch points are for people. What else have you got in the pipeline in terms of what does that look like?

RP: Well, I think if you go back to what XSBI is based on. So it’s revenue that’s going through small businesses, it’s time to pay, which is what we’re talking about in terms of cash flow. It’s wage growth and it’s employment. So I think that it would make sense based on what we see and where we see certain trends magnify, we will dive into whichever one of those we think is most meaningful for the market and it’s going to be different for different markets. This is the one probably learning from the pandemic is that all things aren’t equal. I live in Melbourne, one of the longest lockdown cities in the world. And we’ve seen significant impact on our economy because of being in and out of lockdown. But then New Zealand is not the longest lockdown country in the world, but when they locked down, they went hard.   

So in Melbourne you could still get take away coffee and those sorts of things. But we’ve seen those countries come out and the UK is bouncing a bit up and down, but it’s got a lot more dynamics from a macroeconomic environment that you’re dealing with as well with Brexit. One of the things we are seeing in the UK, things like the decline in the labour force,  due to people taking an early retirement. And I think that talent and people is going to become a significant challenge for small businesses and all businesses really.

XU: So my final question is, what are you most excited about with XSBI over the next 12 months and where it’s heading and the impact that you think that might have on the Xero user community?

RP: I’m really excited about the fact that I think we’ve got a lot of runway in the UK in particular, to be able to influence the government on their policy decisions, to support small business. And the reason that becomes most important for now is because it will be small business that helps this economy bounce back after COVID and after Brexit and after the leadership change. So the government will wake up at some point and realize that they need to care and consider this. And I think that they’ll be knocking on our door because we’ll have access to the most relevant and timely and up to date data.

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