The Cash Flow Problem
• Cash flow is a “continuing” problem for one in five small-business owners. Another nearly one in two also suffers cash flow troubles, but less frequently than those with a continuing problem. One in three “never” experience cash flow difficulties. Larger, small businesses are as likely to encounter cash flow problems, if not more so, than the smallest.
• Small-business owners believe that the primary reason they experience cash flow problems is the difficulty they encounter collecting money due them (30%). The second most frequently cited reason is seasonality (23%). The third is unexpected variations in sales (15%) and the fourth, weak sales (13%).
• Small-business owners with a “continuing” problem are three times more likely to offer large, up-front capital outlay requirements for their cash flow difficulties than are those with a “common” or “occasional” problem. They are also 25 percent more likely to cite uncollected receivables. Those with an “occasional” problem are twice as likely to note seasonality as the primary reason as those with a “continuing” problem.
• Sixteen (16) percent report that their sales largely occur within a quarter or a six-month interval (seasonal). The “season” for those with sales concentrated in one quarter is usually the third or fourth quarter. The “season” for those with sales concentrated in a six-month period most often begins in the second quarter and carries through the third.
• There is no one most important action typically used to resolve a cash flow problem. However, 80 percent designate one of four actions as the most important usually taken: 26 percent say that their most important step is drawing on personal resources, e.g., personal savings or investments; 20 percent borrowing, i.e., taking out a loan or drawing down a line of credit; 19 percent adjusting scheduled purchases; and, 15 percent adjusting scheduled payments.
• Small-business owners with a “continuing” or a “common” cash flow problem are more than twice as likely to cite “borrowing” as their most important step as are those who have an “occasional” problem.
• Small-business owners employ multiple actions to fit specific cash flow situations. Only ten percent who ever experience cash flow problems use one measure exclusively. Half of those who use one exclusively attempt to collect money owed them and the bulk of the remainder rely on personal resources.
• The three most frequent responses to a cash flow problem (as opposed to the one most important) are: “try harder to collect the money owed you” (72%), “adjust scheduled purchases” (71%), and “draw on personal resources” (63%). The second tier of likely responses include: “adjust payment schedules” (50%) and “borrow” (47%). The most frequent actions are not always the most important or helpful.
• About 70 percent say that when borrowing for a cash flow problem, they are most likely to obtain a loan or draw down a line of credit from a commercial bank. Family and friends (11%) and financial institutions other than commercial banks (10%) are the next most likely sources of borrowing. Just eight percent identify the credit card as their most likely source.