You should probably have a good handle on your company’s cash flow, but do you ever wonder how your company compares with other small businesses? Intuit QuickBooks recently released a global study, the State of Small Business Cash Flow, which reveals the cash flow challenges experienced by small business owners and self-employed workers around the world. The study is also an in-depth assessment of the behaviors and attitudes of entrepreneurs experiencing cash flow challenges.
As I read the study, the section on cash flow issues faced by entrepreneurs caught my eye. According to the study, 69% of small business owners are kept up at night with concerns about cash flow. What drives cash flow issues for the self-employed? Let’s take a look at the top four factors.
1. Managing receivables
Receivables, for those unfamiliar with the term, is a balance of money due to a company. The business has provided services to a client or customer; however, the client still owes the company payment for those services. Until receivables are repaid in full, they are referred to as outstanding receivables.
One-third of all small business owners in the United States estimate their companies have more $20,000 in outstanding receivables, according to the study, and the average outstanding receivables for U.S. small businesses is $53,399.
2. Managing payments
How do small business owners manage payments? The study reveals 53% will send out invoices which bill customers and/or clients for services on a specific date. On the flip side of the coin, 47% of small business owners use advanced payment. This allows entrepreneurs to charge customers and/or clients for services before they receive them, or right when they do.
How long does it take money to process for small businesses? More time than you might think. Sixty-six percent of small business owners revealed the greatest impact on their company’s cash flow is the amount of time it takes money to process after receiving payments. Nearly one-third (31%) of small business owners say they wait more than 30 days for payments.
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3. Employee management
Small business owners are not the only ones impacted by not receiving pay. A lack of readily available funds makes it difficult for entrepreneurs to pay employees on their payroll. More than two in five (43%) of small business owners with cash flow issues have been at risk of not being able to pay employees by their assigned payday.
Unfortunately, 32% of small business owners surveyed have paid their employees after their paydays. As illustrated by events like the partial government shutdown earlier this year, the impact late pay has on employees can be dire. Many individuals live paycheck to paycheck, and when a small business employer cannot pay on time, employees are likely to start looking for jobs at companies that can provide dependable pay.
4. Getting capital
What happens when it becomes too difficult to have liquid finances available? Some small business owners turn to loans and other forms of capital for financial support.
Getting financial support, though, isn’t always easy, and for some business owners this means admitting defeat before they have had a chance to try. Nearly two in five (39%) of U.S. small business owners don’t apply for loans, with 29% saying they don’t apply because interest rates are too high, 23% do not want to make payments, and 19% do not think they will be approved.
How to resolve cash flow challenges
Sometimes I’m in a position to write an article in which I can offer actionable advice and help for small business owners. Cash flow is a slightly different matter. As noted by the study, it’s become an increasing problem for small businesses not to have funds readily available for real-time expenses.
While I am not a financial professional, I certainly don’t think it’s fair for small business owners to lose sleep worrying about cash flow. I recommend meeting with a accounting professional or a financial adviser to help sort out these concerns. These professionals will be able to get entrepreneurs on track with better billing practices, for example, that can be an asset to small businesses. Once companies and their owners are better equipped to resolve these issues, they will be able to keep relationships strong with employees, vendors, clients, and customers.