In a seemingly promising new turn for Australia’s economy, small businesses have achieved their most significant sales and job expansions in over two years, fueled by favorable monetary policies and heightened consumer activity. Data from cloud accounting platform Xero reveals that these enterprises posted a 6.7% year-on-year increase in business revenue during the December 2025 quarter, marking the highest level since mid-2023.
According to insights from Xero, this uptick was particularly pronounced in December, where sales jumped 9.6% compared to the previous year—the sharpest monthly gain observed since the beginning of 2024.
Analysts attribute this momentum to interest rate reductions implemented earlier in 2025, which appear to have bolstered spending patterns among consumers.
Employment figures painted an equally optimistic picture, with jobs in the small business sector rising 3.4% year-on-year, the strongest performance recorded in 24 months and reminiscent of late 2023 trends.
This hiring spree underscores a broader recovery, as businesses ramped up their workforces to meet growing demand. However, wage growth presented a more tempered story, advancing by 2.0% over the quarter.
December’s figures were notably subdued at just 0.5% year-on-year, influenced by seasonal slowdowns during the holiday period, though revisions in upcoming reports could adjust this upward.
Beyond revenue and staffing, cash flow dynamics showed notable improvements.
Small firms received payments in an average of 23.9 days, the quickest turnaround since Xero began tracking this metric in 2017.
Late payments also edged down slightly to 6.6 days from the prior quarter’s 6.7 days, offering some relief amid ongoing economic pressures.
Despite this progress, payments remain nearly a week overdue on average, highlighting persistent challenges in liquidity management.Regional disparities added nuance to the national narrative.
Queensland emerged as a frontrunner with 8.3% year-on-year sales growth, closely trailed by South Australia at 7.8%.
These states outpaced the countrywide average, potentially benefiting from local economic drivers such as tourism or infrastructure projects.Industry-wise, certain sectors shone brightly.
Construction led with a 9.5% sales increase, followed by health care at 9.3% and real estate at 8.6%, all surpassing the overall benchmark.
In terms of job additions, health care topped the list with 5.7% growth, while construction followed at 5.3%.
Conversely, retail and hospitality lagged behind, with sales up 4.7% and 3.5% respectively.
Retail faced headwinds, dipping to a mere 3.3% growth in November—the lowest since April 2025—amid aggressive discounting that favored bigger competitors over smaller outlets.
While these developments signal resilience, external factors loom large.
The Reserve Bank of Australia‘s February 2026 interest rate hike may dampen the late-2025 enthusiasm by curbing consumer expenditure.
Louise Southall, an economist at Xero, noted,
“Small businesses worked hard to find their footing in late 2025, reaching sales and employment levels we haven’t seen in two years… the February cash rate hike is a reminder of the fragile environment these owners operate in.”
Angad Soin, Managing Director for Australia and New Zealand at Xero, emphasized the cash flow imperative:
“Yes, we’re seeing the fastest payment times on record — but let’s be clear: small businesses are still being paid almost a week late… Cash flow discipline is becoming non-negotiable.”
Derived from insights across various Australian small businesses, this Xero Small Business Insights report underscores a sector on the mend, yet vulnerable to policy shifts.