Money rules the world. This is the unfortunate reality – and it’s especially vital when you run a small business. The health and longevity of your business depends on it, so naturally, it’s worrisome.
In a study of 3,000 small businesses, Intuit and Wakefield Research found that 69% of them had been “kept up at night by concerns about cash flow.” So, feeling stressed about money isn’t uncommon – in reality, it’s pretty normal.
Cash Flow – The Data
The Small Business Administration (SBA) regularly releases data pertaining to small businesses and their struggles. In 2018, it reported that the largest reason businesses close (25%) was because of low sales or not enough cash flow. This is down from 2007 (39.9%), but nevertheless, access to cash is the most important indicator of a business’s long-term success.
The Intuit and Wakefield Research data also found out that 52% of U.S. small business owners have lost more than $10,000 by not pursuing a project or sale because of insufficient cash flow. This keeps businesses in a constant cycle of struggling for capital – if they don’t have the cash flow to invest in new opportunities, they miss out on a chance to create more. Even more, 42% of small business owners have experienced cash flow issues within the last year specifically.
What about getting capital through financing? The same study found that many business owners aviod it (39%) because they’re deterred by the interest rates (29%), they don’t want to make payments (23%) or they fear they wouldn’t be approved anyways (19%). The Small Business Credit Survey (SBCS) also reports that, in order to address financial challenges, 69% of business owners use their personal funds. 45% took on additional debt, 32% cut operations, and 28% just didn’t pay (meaning there’s some crossover, that some did two or more of the options). And then, the SBA echoes the same thing – by far the largest option that business owners choose to handle cash-flow issues is using their own personal money.
Not only does lack of cash flow create skepticism about business financing, but it also creates stress on employees. The Intuiet and Wakefield Research found that 43% of businesses had been at risk of not paying employees on time, and 32% actually had paid them late. Forbes says this can lead to employees having mistrust in their employers, and being swayed by other jobs.
From all this data, it seems like the root cause of cash flow struggles is waiting for payment from customers. 53% of surveyed companies use invoices to bill their customers, and the average U.S. small business has about $53,399 in outstanding receivables. This creates a problem for owners because if they don’t have the money they’re owed, they can’t pay for other expenses. On top of that, they also can’t make further investments, keeping up the constant cycle of struggling for cash flow because they can’t pursue other projects. 66% of companies say that waiting for payments to process, even after it’s been received, is the biggest impact on their cash flow.
What To Make of the Cash Flow Data?
First of all, we have to say that if you’re vehemently concerned about your business’s financial health (as you probably should be), you should seek the advice of your business accountant, or you should get a business accountant if you don’t have one already. They’re financial specialists that know your business directly and can give the most accurate advice.
Since you know all this data and research, though, it can help you be more informed and aware of the struggles that plague small businesses. Since this is all based on actual businesses and real people, the more prepared you are for these struggles, you can foresee them and combat them. Knowledge is power, right? Financial literacy is vital for new businesses, and the more research you do into your industry, the more prepared you’ll be.
If you’re interested in financing to combat cash flow problems, give FaaSfunds a try. We’ve got business credit consultants on call to help you with whatever you need to benefit your small business.