Cash is king. Cash flow is one of the top small business killers. Money makes the world go round. You’ve heard it all. But what are the current cash flow statistics and trends to back this up?
At PayPie, we know how much foresight matters to your cash flow and overall financial health. Having the right facts at hand makes you better informed and prepared, regardless of the situation. For all the fact hounds out there, here’s our end-all-be-all list of small business cash flow statistics and trends:
There are more small businesses than any other kind of business
When you look at the numbers, it’s not just size, it’s quantity. Most businesses — anywhere in the world — are small to medium-sized enterprises (SMEs).
- SMEs represent 99.9% of all US businesses.
- 97.9% of all Canadian businesses are SMEs.
- SMEs also represent 99% of all businesses worldwide.
Small business cash flow statistics and facts
If your SME struggles with cash flow, you’re not alone. Cash flow is a major concern. But it doesn’t have to be the enemy. This is why we’re committed to providing the knowledge and solutions you need to take control.
- SMEs live and die by their operating cash flow.
- Small businesses of all sizes consider cash flow one of their top 5 challenges.
- Among failed SMEs, 60% cited cash flow as a cause.
- For every $1 lent to small businesses, sales of these borrowers increased by $2.31.
- 10 of the best businesses for cash flow include franchises, finance and insurance, health care and social assistance, home-based businesses, niche restaurants, real estate rental and leasing, retainer-based professional businesses, regulated industries, software as a service (SaaS) and service-based industries.
Benchmark reports on small business cash flow
Because cash flow is so crucial to SMEs, it’s the subject of industry research and studies. The following are some of the most recent reports containing small business cash flow statistics. Thank you to all the organizations who put these together. Research is hard work and it’s even more difficult to do it well.
Three-quarters of SMEs need more cash:
- 37% of U.S. SMEs said their need for liquidity increased significantly.
- 34% said it increased slightly.
How SMEs would use additional cash flow:
- 33% would purchase more inventory or equipment.
- 28% would expand operations, such as exporting to new markets or opening new locations.
- 16% would use it to meet current obligations.
- 10% would invest in employees through hiring, wages and benefits.
- 9% would put the funds into R&D.
- 4% would create contingency plans to deal with unexpected events.
SMEs and access to funding:
- A majority said that access to traditional and alternative funding was easier.
- There was a 40% increase in the number of SMEs using business financing.
- 1 in 5 SMEs face difficulties in borrowing from traditional lenders.
- 30% of SMEs feel that high interest rates keep them from using various forms of financing.
- 16% say time-consuming and rigid processes keep them from funding.
- Global median interest rates are 50% higher for SME loans.
- Alternative sources of funding, like invoice factoring and other online options, will be critical to meeting the needs of SMEs.
- Globally, there’s an unmet credit need of $2.1 – 2.5 trillion.
- There is equal concern for both long-term and short-term funding.
- By 2020, alternative lenders will have a 20.7% of the US small business lending market.
- 82% of SMEs are likely or very likely to try new sources of funding.
2016 JPMorgan Chase Report
(Based on info from 600,000 SMEs.)
- Most SMEs only have enough cash flow to cover 27 days of expenses.
- The top quarter of SMEs only has two months of reserves.
- As a median, SMEs have $374 in average daily cash outflows and $381 average daily cash inflows of $381.
- While this varies by industry, the median shows only a $7 difference between inflows and outflows. (This is detailed further in the SCORE infographic included in this post.)
- The average daily cash balance is $12,100.
- Labor-intensive or low-wage industries have fewer cash buffer days than capital-intensive or high-wage industries.
2016 SCORE Infographic — Small Business, Credit, Capital and Cash Flow (References the JPMorgan Chase report, specifically the daily income averages.)
Cash flow, costs, the availability of credit and building revenue are all top challenges for SMEs.
It’s harder for SMEs to get approval for business financing:
- 38% of businesses with revenue less than $5 million are approved for bank loans.
- 70% of businesses with revenue between $5 and 100 million and are approved for bank loans.
Why SMEs are turned down for business funding:
- 25% are due to poor earnings and cash flow.
- 21% are due to the size of the business.
- 19% are due to insufficient operating history (new businesses).
- 52% of small businesses are less than 10 years old.
- 33% are less than 5 years old.
- 18% are due to poor credit.
SMEs are better at credit management than larger firms:
- On average, SMEs credit scores are 48 points higher.
- SMEs are less likely to have revolving bank cards that are 90 days past due.
Smaller banks approve more loans for SMEs
- 60% of businesses with revenue less than $100K are approved by small banks
- 69% of businesses with revenue between $100K to $1M are approved by small banks
- 88% of businesses with revenue between $1M and $10M are approved by small banks.
- 96% of businesses with revenue greater than $10M are approved by small banks.
Seen this one? 82% of all businesses fail due to poor cash flow management or poor understanding of cash flow itself. At PayPie, we’re careful to reference this statistic because:
- The source is a U.S. Bank study conducted by Jessie Hagen. While this statistic is cited like crazy, it’s difficult to find the original source. Some citations, such as the one above, date back to 2011.
- Checking her LinkedIn profile, Jessie was the vice president of U.S. Bank’s small business division from 2001 to 2006. So, the report was likely created during those years. This source puts the date around 2005.
- Finding consistent statistics on small business failure rates is an equal challenge. This post also goes into the confusion surrounding these numbers.
Late payments are a BIG problem for SMEs
Cash flow management is all about timing inflows against outflows. When customer payments are late, the cycle gets all out of whack. Unfortunately, this is all too common in the SME universe. The following studies explain why:
- 24% of SMEs say that their customers are often late paying their invoices.
- 28% of SMEs worldwide struggle with late payment.
- 1 out of 10 SME invoices is paid late.
- Late payments to SMEs total nearly $3 trillion worldwide.
- Over 30% of SMEs experience or expect to experience a direct negative impact from late payments.
- 10% of late payments are written off as bad debt.
- SME spend nearly 15 days a year chasing payment on outstanding invoices.
- 51% of SMEs consider accounts receivable and collections a top business concern.
The facts on SME credit reports
The current system for evaluating an SME’s credit history doesn’t favor the businesses themselves. Business credit reports are generated by several different organizations and most business owners don’t even know where to start in terms of managing these reports.
SMEs suffer awareness issues:
- 45% of SMEs don’t know they have a business credit score.
- 82% don’t know how to understand their credit reports.
Business credit reports are complicated:
- Up to 800 different pieces of information are used to calculate business credit scores.
- Nearly 25% of businesses find errors or missing data in their credit reports.
- 23% of businesses find fixing these mistakes difficult.
Why this matters:
- SMEs who understand their credit score are 41% more likely to be approved for business financing.
The facts on SMEs and financial knowledge
Honestly, unless you earn an MBA, they don’t teach entrepreneurship in schools. Most business owners learn as they go and any gaps in knowledge aren’t a reflection of personal fault. No single person can know everything. (Ok, we all know that one guy…)
- Nearly 1 in 5 business owners don’t have separate business and personal banking accounts.
- Only 39% of SMEs consider themselves generally knowledgeable about accounting and finance.
The numbers that prove why SMEs trust their accountants
Thanks to cloud-based small business accounting software, the internet and the modern age, it’s now easier than ever for SMEs to work with an accountant.
- 64.4% of US SME owners use accounting software.
- SMEs consider accountants their most trusted advisors.
- 77.7% of small business accountants offer value-added services like cash flow consulting.
- 70% of SME accountants see their advisory roles becoming more strategic.
- 58% of SMEs don’t expect to meet with their accountants face-to-face.
The statistics on better SME business funding and risk scoring
While some of the cash flow statistics in this post may seem downright daunting and depressing, there is genuine hope for the future. Alternative financing options, like online and asset-based lending, are growing and technology continues to advance the cause of SMEs.
- Online lending platforms funded nearly $10 billion in online loans in the United States from 2015 to 2017.
- Invoice factoring is a now a $3 trillion industry.
- Fintech is also revolutionizing risk assessment.
- SMEs who review their cash flow once a year only have a 36% survival rate.
- SMEs who monitor cash flow on a monthly basis have an 80% survival rate.
Make your numbers work for you
At PayPie, we believe that the financing barriers most SMEs face simply aren’t their fault. In fact, our company began from a conversation where a small business software user asked, “Why can’t my lender just look at the reports I have in my account?”
Applying for traditional business financing can be tedious. So, can managing cash flow. Until now. If you’re a QuickBooks Online user, like roughly millions of other SMEs around the world, you can connect your QBO to your PayPie account and start analyzing your cash flow today.
Your interactive report, filled with insightful charts and graphs, will also contain a proprietary risk score derived from the same near-real-time data. It lets you know where you stand right now, instead of where you stood three months ago.
As soon as it’s available, our invoice factoring will let you access a global marketplace of lenders in order to turn outstanding invoices into accessible funding.
PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.
The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.
Images via Pexels.