Canadian small business sales see sharp 2025 slump

Canadian small business sales growth fell sharply in the final quarter of 2025, marking the steepest quarterly decline since 2020, according to new data from Xero.

Xero's Small Business Insights report, based on aggregated and anonymised data from 12,000 Canadian small businesses using its platform, found that sales growth fell to -4.1% year-on-year from October to December 2025, well below the long-term average of 4.5%.

The decline followed a steady slowdown through 2025. Sales growth started the year stronger, weakened in each subsequent quarter, and contracted at year-end.

Payment indicators, however, were broadly stable. The average time to be paid held at about 27 days, coming in at 26.8 days in the December quarter.

Late payments improved slightly, with bills paid an average of 9.7 days late in the December quarter. The report tracks sales, time-to-be-paid, and late payments as indicators of operating conditions and cash-flow pressure.

Louise Southall, Xero's economist, linked the shift to a more unsettled trading environment and wider economic disruption.

"Heightened macroeconomic uncertainty, heavily disrupted supply chains, and shifting trade policy have significantly impacted the Canadian small business economy. We're now seeing the true cost of a fractured global economy show up at the SMB level," Southall said.

She said the sector entered 2025 in a stronger position after earlier Bank of Canada rate cuts, but the momentum did not last.

"The small business sector started last year in a solid position, following earlier policy interest rate cuts by the Bank of Canada. But throughout the year, the general trend in Canada's small business sales growth slowed, culminating in a decline in sales in the final quarter," she said.

Regional splits

The report highlighted diverging results across provinces, with Alberta standing out for stronger performance through much of the year. Alberta recorded year-on-year sales growth of 11.0% in the March quarter, 2.9% in the June quarter, and 3.8% in the September quarter, above the national average in each period.

British Columbia posted the weakest result late in the year, with sales down 8.2% year-on-year in the December quarter, a sharper drop than the national figure.

Payment times varied more between provinces than they did nationally. The report noted considerable volatility in time-to-be-paid metrics across regions. In the December quarter, Alberta's time to be paid was 26.6 days, comparing favourably with British Columbia and Ontario.

Planning pressure

Xero framed the results as evidence of a more unpredictable operating environment for small firms, particularly those tied to trade flows and supply networks. The report pointed to a more volatile landscape as conditions shifted throughout the year.

Ashalee Mohamed, Xero's Head of GTM for Canada, said the changing environment was making forecasting and planning more difficult.

"In an operating environment that is increasingly irregular and unpredictable, it's incredibly challenging for small business owners to anticipate demand or make strategic plans right now," Mohamed said.

She added that owners could still focus on decisions within their control as they assess the period ahead.

"While the road ahead is uncertain, Canadian small businesses have proved time and again that they can be agile and resilient in the face of uncertainty. Small business owners should prioritize decisions that are within their control and look for ways to insulate themselves against market uncertainty wherever possible," she said.

The quarterly report draws on sales and invoicing activity from small businesses using Xero's platform, with figures aggregated and anonymised. Xero also noted it changed the Small Business Insights methodology in 2025, including adjustments to the definition of a small business and how it identifies region-based businesses.

Future releases are expected to show whether the late-2025 contraction persists into 2026, as small businesses track demand, payment behaviour, and regional differences in trading performance.