Xero has indicated that Canadian small businesses faced a sharp slowdown in the closing months of 2025, with sales growth tumbling to levels last seen during the depths of the global health crisis. The latest quarterly snapshot from Xero’s Small Business Insights program paints a sobering picture of an economy grappling with mounting pressures.
Drawing on anonymized transaction data from roughly 12,000 Canadian firms using the Xero platform, the report highlights a 4.1 percent year-over-year contraction in sales for the October-to-December period.
This marks the steepest quarterly drop since the third quarter of 2020 and sits well below the long-term average growth rate of 4.5 percent.
After a promising start to the year, momentum steadily eroded across each successive quarter before sliding into outright decline by year-end.
Payment cycles offered a sliver of stability.
The average wait time for invoices to be settled held steady near 27 days, while overdue payments edged down slightly to 9.7 days.
Yet these modest gains could not offset the broader revenue squeeze triggered by persistent economic headwinds.
Xero economist Louise Southall attributed the downturn to a perfect storm of external forces.
She pointed to elevated macroeconomic volatility, fractured global supply chains, and evolving trade policies as key culprits.
According to Southall, the sector entered 2025 on relatively firm footing thanks to earlier interest rate reductions by the Bank of Canada.
However, that optimism gradually faded as sales trends weakened quarter after quarter, culminating in the final-period contraction.
“We’re now seeing the real impact of a fragmented global economy hitting small businesses directly,” she observed.
Regional performance told a tale of diverging trajectories.
Alberta stood out as a bright spot, delivering steady growth through much of the year—including double-digit gains early on—consistently outpacing the national benchmark.
In contrast, British Columbia recorded the weakest showing, with sales plunging 8.2 percent in the final quarter.
Payment timelines also varied widely by province, though Alberta generally fared better than both British Columbia and Ontario, clocking in at 26.6 days on average.
Ashalee Mohamed, Xero’s Head of Go-to-Market for Canada, acknowledged the mounting difficulties facing entrepreneurs.
“Operating in such an erratic environment makes it extremely tough for owners to forecast demand or chart long-term strategies,” she noted.
Still, Mohamed expressed confidence in the sector’s proven adaptability.
She urged business owners to concentrate on factors they can influence—such as cost control, cash-flow management, and contingency planning—to shield themselves from external shocks.
The insights form part of Xero’s ongoing Small Business Insights initiative, which aggregates de-identified data to track key indicators like revenue trends, receivables, and payment behavior.
Methodology refinements introduced in 2025 ensure greater precision in defining small businesses and regional breakdowns.
As Canadian small businesses navigate continued uncertainty, the latest figures from Zero underscore both the challenges and the resilience that define the sector. With macroeconomic conditions remaining fluid, the ability to adapt quickly may prove decisive in the months ahead.