Small businesses are somewhat the lifeblood of the economy. There are many small businesses worldwide. Well, actually, small business represents 99% of businesses worldwide. No matter the relative size of the small business, one big issue that plagues them is cash flow problems.
From not having enough to poor management, the cash flow is one of the most cited challenges for small businesses. Without proper cash flow management, the operations will suffer greatly. That is why this article is your all-in-one guide for everything cash flow.
We analyzed crucial 18 cash flow statistics 2024 about small businesses and cash flow. If you own a small business, these are something you cannot afford to overlook! But before that, let’s see why even bother paying attention to cash flow.
Why Paying Attention to Cash Flow Is Important ?
No matter what kind of business you own, or what size it is, cash is hands down one of the most important things. It simply keeps the show running. From big businesses to small businesses, paying attention to cash flow is super important.
This is even more true when it comes to small businesses. In fact, most of the businesses out there are small. This guide will tell you all the important cash flow statistics you need to know to be ahead in your business.
It does not matter what industry you are in, or which phase of business you are operating. With the right information, you will be able to make more informed business decisions. And besides, knowing the in and out of your business’s cash flow will keep it financially healthy as well.
Let’s check out some of the terms that you should know when you are running a business.
Cash Flow Helps You Tackle Uncertainties
Business is an uncertain game. Different challenges can appear from anywhere. The market might change. While knowledgeable business owners can sometimes predict drastic market changes, having proper cash flow management will help you prepare in the case when something unexpected comes up.
And let’s be honest, something unexpected can come up anytime. That is just one of the risks of doing business.
Well Managed Cash Flow Equals to a Healthier Business
When you have mastered the art of managing cash flow for your business, you will be set to having a much healthier business in general. Your business will be much more financially stable. SMEs need to start by analyzing their cash flow.
Recording Cash Flow Gives Insight
When you record a cash flow, you gain valuable insights on a lot of important things. Things like where the money is coming from, where the money is being spent. It basically tells you how your business has earned or spent money through all its operational, investment and financing activities throughout a certain time.
The cash flow statement should be divided into segments or quarters. You can do one weekly, or monthly and an annual one as well. If you want to be really serious about it, doing all three can work as well.
Having this data over a couple of quarters will give you a much clearer picture of how your business is operating. Where the revenue is being invested, how much money everything is costing you, and more importantly, how much you are earning through your sales.
It will also help you maintain enough cash to meet your obligations. Like payroll, loan payments, and also payments made to vendors and likes.
18 Cash flow Statistics and SME Facts You Should Know
Let’s start with some crucial statistics about small business cash flow. A lot of smart people and business magnates have researched and studied how cash flow impacts a business’ operations. There are a ton of small businesses in the US.
30.2 million small businesses. This small business, where there are fewer than 500 employees, accounts for 47.5% of the country’s workforce.
1. SMEs Live and Die by Their Cash Flow
You have probably heard the term SME. It means small and medium enterprise. Like it or not, SMEs practically live and die by their cash flow. To be more specific, their operating cash flow. Large companies have a very crucial safety net. Their cash.
For SMEs, there is a lot of volatility and obscurity that they need to face. When you have paid for the services/product you offer, you essentially run on your cash flow. If that is not there, there is no ‘fuel’ to run the business on.
That is why we say that SMEs really do live and die by their cash flow. About 60% of SMEs fail due to cash flow problems. So, it is not something you can just ignore.
2. Small Businesses Say Cash Flow Is One of Their Main Concerns
If you find yourself often worried about cash flow and how you will handle all that, you are not alone. Small businesses, regardless of the relative size, say that cash flow is one of their top 5 challenges.
This means that everyone really is feeling the pressure here. And it makes sense given how important cash flow can be for a small business.
3. SME Liquidity Need Increased a Lot
In the US, 37% of small businesses said that their need for better liquidity has increased quite significantly. That can be because of a lot of different things.
It can be either for poor cash management, cash being tied up, or just not having cash flow in general. On the other hand, 34% said that the liquidity needs to increase by a bit. So, businesses can be found on either side of the coin.
4. Most SMEs Can Cover Only 27 Days of Expenses
Currently, most SMEs do not have much cash. That is not news. However, there are more specifics about this.
Small businesses, in general, have the cash to pay for only 27 days of expenses and day-to-day operational costs. Not the best position to be in.
5. Healthy Cash Flow Would Be Mostly Used for Inventory Purchase
You cannot do business if you do not have anything to sell. So, it is no surprise that 33% of the businesses said that they would use cash flow to buy inventory or equipment.
Equipment is also necessary for keeping processes running. This is especially true for manufacturers.
6. Expanding Operations
Not all businesses have the same action plan. Some want to use cash flow to grow and expand their operations. It can be to new markets and opening new locations in other places.
28% of small businesses said that they would use cash flow to expand. And it also includes exporting to new markets.
7. Invest In Employees
You could argue that a company’s employees are its biggest assets. So, it is no surprise that some businesses want to have the cash flow for investing in their passionate workforce.
This investing can take many forms. It could be hiring new employees, giving further training to existing ones or even for wages and employee benefits.
8. Contingency Planning
As we said already, business is a game of uncertainty. You do not know for sure what will happen and how things will play out. The best you can do is be informed, have insight into the market, and prepare for uncertain events.
That is why 4% of small businesses said that they would use the cash flow for contingency plans for such events.
9. SMEs Get More Loan Approvals
Here is some good news. In general SMEs have a higher rate of loan approval from banks. The percentage here is dependent on the revenue your businesses generate. Businesses that have a revenue of less than $100K have a 60% approval rate.
For businesses with more than $100K – 1M, the approval rate for loans is 69$. It is an 88% approval rate for businesses with revenue of over $1M – 10M and a 96% approval rate for businesses with over $10M revenue.
10. Late Payments Still Remain a Big Problem
When you are a small business, not getting paid on time can be very detrimental. That is why 24% of SMEs say that their customers are late on their payments. This can starve the business out of cash.
If you do not get paid, you do not have money to run your business, pay for operational expenses, and more. Worldwide, 28% of small businesses struggle with late customer payments.
11. Late Payments Are Sometimes Just Written off As Debts
Getting paid late is bad enough. Now, imagine that being written off as debt. Yes, that can be very painful for small businesses. And that happens.
10% of late payments are written off as bad debts. That means this money will not be recovered.
12. SMEs Are Spending Days Chasing Late Payments
Chasing your customers for timely payments is nothing new. But some businesses are spending double-digit days on it.
Nearly 15 days in a year are spent on late invoices and payments. While it may not sound like all that bad, it can impact the operation of a business. And there is always the chance of the late payment being written off as bad debt as well.
13. Understanding Credit Reports Is a Big Issue
If you are a business owner, awareness and understanding the financial aspects of your business are very important. It might be a shock to you, but 82% of businesses do not understand their credit reports fully.
That number is way higher than it should be. When you understand your credit report, you will be able to make much better decisions.
14. Errors and Missing Data Is Not New in Credit Reports
Speaking of credit reports, the frequency of which businesses find mistakes and data just outright missing is also quite high.
Almost 25% of small businesses say that there were errors or missing data in their reports. Fixing them is not easy either. 23% of them said that fixing all the mistakes is quite tough.
15. Not All Businesses Even Consider Themselves Particularly Knowledgeable
Another surprising statistic is that not all businesses are confident in their knowledge when it comes to finances and accounting.
Only 39% of small businesses even consider themselves somewhat well knowledgeable on the matter. If you are starting a business, or already running one, make sure to have a good grasp on the financials and accounting.
16. SMEs Trust Their Accountants
This statistic may very well just be a direct effect of the previous one. SMEs trust their accountants quite a lot. And we are not saying that they should not. An accountant working for a company will, in most cases, have the best interest of the business in mind.
SMEs say that their accounts are their most trusted advisors. A growing number of advisory accountants’ roles become more strategic. 70% of SME accountants have had that shift.
17. Awareness Is an Issue
Being in the dark regarding anything about your business is a big no-no. And that is even more true if that thing is your business’ credit score and cash flow.
45% of SMEs do not seem to know their credit card score. One of the ways you can have better cash flow management is knowing everything related to it.
18. The More Cash Flow Reviews, The Better It Is
Here is another interesting one. Businesses that review their cash flow often, have a higher survival rate.
Those who do it every month have a survival rate of 80%. And businesses that monitor it only once a year, have a survival rate of a measly 36%.
Conclusion
There you have it. Told you some of the cash flow statistics 2024 are going to be pretty nerve-racking. But there is nothing to worry about. Knowing about your cash flow is half the battle already.
You need to be aware of how cash is entering and exiting your businesses. And there are tons of things you can do to have a healthy cash flow.
Your Next Step
If you are unsure about your current cash flow situation and want to find out cash flow health, this cash flow quiz will help you raise your cash flow self-awareness. The Cash flow quiz will help you identify the causes of cash flow problems in your small business and ways you can improve cash flow.
[QUIZ] How healthy is your cash flow?
Take this cash flow quiz and find out in less than 60 seconds as well as my personal advice to improve financial health of your business.
