Canada’s small businesses are grappling with significant challenges as the latest Xero Small Business Insights report reveals the largest quarterly decline in sales growth since 2020. The report, which analyzed data from 12,000 Canadian small businesses using Xero’s accounting software, highlights a 4.1 percent year-over-year drop in sales growth for the final quarter of 2025. This downturn underscores the impact of a turbulent global economy on the small business sector.
### Xero’s Findings on Small Business Performance
Xero, a company providing cloud-based accounting software, conducted its analysis on firms with annual sales under $50 million CAD. The report assessed various metrics, including sales performance and payment timelines. The findings indicate that the decline in sales growth dragged the annual average down to 1.4 percent, marking the most significant quarterly drop since the pandemic’s early days.
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Louise Southall, an economist at Xero, noted that the sector started 2025 on solid footing, buoyed by interest rate cuts from the Bank of Canada. However, ongoing economic uncertainties, disrupted supply chains, and fluctuating trade policies between the US and Canada have taken a toll. Southall emphasized that these factors are now visibly affecting small and medium-sized businesses (SMBs).
### Economic and Trade Challenges
The report attributes much of the sales decline to heightened uncertainty and disrupted supply chains. Canadian businesses faced a volatile year with frequent changes in US trade policies, including shifting tariff rates and trade exceptions. These fluctuations have created a challenging environment for small businesses reliant on cross-border trade.
Despite these hurdles, the report offers a silver lining: a reduction in late payment durations. In the fourth quarter of 2025, late payments averaged 9.7 days, the shortest period since mid-2024. This improvement suggests that while sales growth is stalling, cash flow issues might be easing slightly.
### Industry Implications and Future Outlook
The decline in sales growth for Canadian small businesses highlights broader industry trends and challenges. As global economic fractures deepen, small businesses must navigate a landscape marked by instability and rapid changes in trade policies. The report suggests that 2026 will likely be another year of adjustment, with businesses continuing to adapt to supply chain shifts and exploring new markets for export.
This situation underscores the need for robust strategies to mitigate risks associated with global economic volatility. Small businesses may need to diversify their markets and strengthen their supply chains to remain resilient in the face of ongoing challenges.
As the Canadian small business sector continues to adapt, the coming year will be critical in determining how these enterprises can sustain growth amidst a complex global economic environment.
