Cash Flow A Tough Lesson To Learn For SMBs

Small businesses (SMBs) are often called the lifeblood of the economy. As it were, cash flow is the lifeblood of the small business — and many firms are struggling. The latest research from Wells Fargo, Euler Hermes and Intuit finds late payments and market volatility are among the largest reasons why SMBs and larger enterprises struggle with cash flow, a scenario that has its own domino-effect of negative consequences.

According to Intuit General Manager Alex Chriss, cash flow is a life-or-death factor for a company.

“Every day, small business owners fight to deliver amazing products and services for their customers, but — with 50 percent of small businesses going out of business within five years of opening their doors — the odds are stacked against them,” Chriss said in a statement. “The top reason for failure is the cash flow crunch and lack of flexible options.”

In another statement, Euler Hermes Americas CEO and President James Daly said uncertainties and market risks have their own impact on organizations’ ability to manage cash flow, too.

“Today’s market conditions can change in the blink of an eye,” said Daly. “The only way to prepare for today’s volatility is to plan for all possible scenarios. Having the right partners and tools in place to create proactive risk mitigation strategies makes that possible.”

PYMNTS breaks down the key findings of these reports for a deeper look into businesses’ cash flow challenges, lessons and outlook.

Sixty-one percent of companies around the world surveyed by Intuit said they struggle with cash flow, which can lead to lost business, the inability to pay vendors and employees, and loan defaults. Intuit found 42 percent of SMBs have experienced cash flow issues in the last year alone, despite tax cuts and other regulatory policies designed to support the small business community.

Fifty-two percent of U.S. SMBs have missed out on $10,000 because insufficient cash flow has forced them to turn down projects or sales, Intuit’s latest survey found. The same can be said for 51 percent of U.K. small firms and 50 percent of Australian SMBs. In the U.S., small firms lost an average of $43,394 because they turned down projects due to insufficient cash flow.

Two-thirds of small firms said payment processing delays have the biggest impact on their cash flow, Intuit’s survey found. That finding suggests that even if companies paid their suppliers more quickly, the lag time between receiving and processing those funds still presents a challenge to SMB cash flow. Nearly one-third of businesses surveyed said it takes more than 30 days to see customers pay invoices.

Twelve percent of small businesses surveyed by Wells Fargo said the biggest lesson they learned since the 2008 financial crisis was to monitor cash flow. Wells’ small business survey also found that 19 percent of SMB owners learned to be more frugal and manage capital, while 9 percent said their biggest lesson was “good planning.”

Thirty-five percent of SMBs plan to increase capital spending in 2019, Wells’ survey noted, marking a four-point decline, while the percentage of small firms planning to cut capital spending rose to 17 percent. Wells Fargo cited that, despite the slight drop, the figures reflect continued confidence in businesses’ spending plans and an optimistic outlook about their cash flow.

Fifty-eight percent of chief financial officers (CFOs) said they feel ill-prepared to manage risks, with a lack of cash flow predictability among the largest concerns, Euler Hermes’ latest survey found. CFOs are also struggling to achieve growth, maintain competitiveness and stay agile as regulations change. Researchers found a correlation between concerns over non-payment and the likelihood that a CFO is concerned about the overall risk landscape: CFOs who are better able to manage cash flow and non-payment events are more equipped to manage risk and unpredictability, the report stated.