Small businesses are raising wages at a rate close to inflation and continuing to poach staff from bigger companies, but it could be ultimately at the cost of their profits.
Small businesses' wages rose 6.8 percent in the year ended June, according to one survey. Photo: RNZ / Marika Khabazi
Xero's monthly small business survey shows wages rose 6.8 percent in the year ended June, the biggest rise in the series' five-year history, and within a whisker of the 7.3 percent inflation rate for the same period.
Employment growth in small firms was also up for the third month in a row at an annual rate of 4.4 percent, but sales growth slowed to 3.3 percent, the lowest in nearly a year.
Xero's New Zealand country manager Craig Hudson said superficially the small business sector was in reasonable shape, but there are growing pressures.
"At the moment, small businesses are able to attract staff - even from larger corporations - through competitive wages. But something they should watch out for is the slowing of sales, which will directly impact profits."
However, Hudson noted that sales growth, which also reflected price increases, was not even with discretionary spending sectors such as hospitality and retail trade recording a fall in sales.
He said looking at sales volumes, which discounted price movements, small business sales actually sold 4 percent less than the year before.
"In the coming months, we will most likely see small business owners navigating the tightrope of balancing declining sales growth with rising wage demands and expectations."
Xero's small business index, which groups together various elements such as sales and employment hit a record high.
Hudson said firms needed to be looking further ahead and preparing for tougher times, especially preserving their finances.
