We held our sixth Responsible Data Use Advisory Council meeting just before Christmas last year. This was another fantastic opportunity to tap the wealth of expertise of our council members about emerging trends around responsible data use for small businesses.
The council is made up of myself, Laura Jackson of Popcorn Shed (business owner), Maribel Lopez of Lopez Research (technology analyst), Wyndi and Eli Tagi of WE Mana (advisors), Aaron Wittman of XBert (app developer), Anna Johnston of Salinger Privacy (privacy compliance specialist), and Felicity Pereyra of Elevate Strategies (data analytics strategist).
The main theme of our conversation was how small businesses can level up both their compliance and their digital and data capabilities in the face of growing regulation.
The push towards digital compliance from governments around the world
With programs like the UK’s Making Tax Digital, Single Touch Payroll in Australia, and a move in New Zealand towards increasing digitalisation through the Inland Revenue Department, small businesses are increasingly being compelled to transition from old analog processes.
The group agreed that implementing the changes necessary to comply with these regulations can be a significant burden, particularly when digital is not the business’s bread and butter. While ‘going digital’ can bring benefits for most businesses – for example, Single Touch Payroll saves time and reduces inaccurate reporting – governments don’t always take the time to spell out the upside of these changes. Conversely, the group noted that some of the changes actually make life harder. For instance, suppliers to the public sector agencies in Australia are required to spend significant time getting set up on e-invoicing systems, for no easily apparent added benefit to the business.
However, the group agreed that government regulation can uplift the overall maturity of the small business sector. It was interesting to contrast the government initiatives in Australia, New Zealand and the UK with the United States, where there hasn’t yet been an equivalent government drive to digitalise. In fact, as Felicity commented, US government regulations sometimes require de-digitisation of data, for instance, due to the need to provide payroll information via PDF.
How small businesses can turn digitalisation from a compliance headache into a growth opportunity
Whether digitalisation is driven by government regulation, or undertaken voluntarily, there are benefits to businesses in making the transition. In fact, a Xero Small Business Insights Special Report found that digitally-enabled small businesses were significantly more resilient throughout the height of the COVID-19 pandemic, and outperformed their peers in most performance metrics.
Digitalisation can enable a business to extract really valuable data insights. Taking accounts payable and receivable data as an example, Maribel noted that you can learn a lot about your likely cashflow by identifying patterns in how and when customers pay invoices, and who your best paying customers are. Sending out invoices generated in Word or Excel makes it harder to get at these valuable insights. Given that a recent Xero Small Business Insights Special Report revealed that more than 9 in 10 small businesses experience at least one month of negative cash flow each year, having easy access to this data can be critical.
Anna noted that a requirement to code certain financial data for tax compliance reasons led to unintended benefits. The resulting data gave her business greater insights into segmentation of their products and services, which meant they could better tailor their offering to different customer segments. A simple workflow change for a tax compliance requirement that they needed to solve has had a direct impact on the business’ bottom line.
In all the examples discussed by the group, the consistent theme was thinking creatively about what insights they could draw from the new data they had at their fingertips as a result of digitalisation.
All types of small businesses can benefit from digitalisation, even when it appears they have little to gain
The benefits of digitalisation may not be immediately obvious to some types of business. For instance, a busy veterinarian or hairdresser selling their time and labour may have little apparent incentive to digitalise their analog processes, beyond meeting a compliance requirement. However, the group challenged this assumption by drawing on the experience of the pandemic, when savvy small businesses used the unexpected downtime to rethink their offerings and systems.
Both Anna and Wyndi gave examples of hairdressing businesses that cleverly pivoted during lockdown. Some salons developed new revenue lines, including selling scissors, kits, and instructional videos. Others used the downtime to implement new online booking systems that reduce admin, errors and no-shows, and create opportunities to upsell and diversify.
It’s interesting that these businesses would not have made improving their digital platforms a priority when there were other demands on their time. A lot of business owners simply don’t have the time or desire to learn how to use new programs and implement new systems. Their priorities are providing their customers with goods or services, and simply getting all the bills paid at the end of the month. But the experience of lockdown drove these businesses to uplift their digital maturity and they are now reaping the benefits.
Of course, there are risks to digitalising processes that businesses need to be alert to, most of which relate to vendors. Wyndi flagged that digitally immature businesses may be overcharged or locked into subscriptions that don’t deliver value. Anna, Laura and Felicity all emphasised the privacy and security risks that come with using off the shelf products and services. Aaron rounded out the discussion by talking about the importance of understanding how third party software vendors are managing your and your customers’ data. And even knowing what to look for can be difficult for small businesses. No doubt the Council will return to this challenge in coming sessions.
2022 was a productive year for the committee, and I really appreciate the different perspectives that our committee members have brought to these conversations. We’ve got some interesting topics to explore in 2023 and I’m looking forward to the insightful discussions we’ll continue to have and sharing our collective learnings with you all.