Running a small business can be tough, and the five-year survival rate for small firms isn’t encouraging. According to the Small Business Administration, the number one reason that these businesses fail is due to cash flow problems.
Even though there have been recent tax cuts that are meant to help businesses, many still struggle with money problems. Intuit’s “The State of Small Business Cash Flow” survey reports that a majority (61%) of small businesses struggle with cash flow and close to one-third (32%) struggle to pay their bills.
This is an annual survey, so you’re getting the most relevant data about the state of small businesses around the world. Here are four of the top cash flow challenges that small business owners currently face.
1. Managing Receivables
When others still owe your company for services provided or products delivered, these are your receivables. If your business routinely has a large balance of receivables outstanding, this can put a strain on your cash flow situation.
According to this study, one-third of all U.S. businesses have over $20,000 in outstanding receivables. The average outstanding receivable for a small business in the U.S. is $53,399. Unless your business can tighten its collection practices, it will likely face a cash crunch.
2. Managing Payments
This brings us to how your company manages its payments. According to the study, over half (53%) of businesses send invoices to customers with a specified due date. The remaining businesses (47%) ask customers to pay in advance before they will deliver a product or service.
One of the biggest cash flow issues for small businesses is how long it takes for money to process after receiving payment. Close to one-third of businesses (31%) say that they are waiting over 30 days for payments.
3. Managing Employees
When a business is impacted by cash flow issues, this can also affect employees. Just under half (43%) of small business owners that experience cash flow issues say that these problems have put them at risk of not being able to make payroll.
Nearly one-third (32%) of the surveyed small businesses admit that they’ve missed paying their employees on paydays. When this happens, the impact on your employees and your business can be catastrophic.
4. Obtaining Capital
When liquidity becomes an issue for small businesses, some turn to various forms of capital for relief. The problem is that this isn’t a simple or affordable solution.
Many small businesses (39%) say that they won’t apply for these loans. A variety of valid reasons for this are given. Some believe that interests rates will be too high, others want to avoid having to make yet another payment, and still others don’t think that they’re going to be approved for financing.
According to Intuit, a majority (69%) of small business owners are so concerned about cash flow issues that it keeps them awake at night. If this is your experience, it’s probably a good time to meet with an accounting professional that can help shed some light on these concerns.
Nolan Accounting Center specializes in helping small business owners throughout Southeast Wisconsin. Our accountants and CPAs provide accounting, bookkeeping, tax preparation, and payroll services to clients in a variety of industries. Contact us today to schedule an appointment.