New Data Signals Hope and Concern for Cash-Strapped SMBs

There’s always a ton of data floating around about the state of the local and small business world. A few recent studies stood out and we want to share our take on them with you here.  

First, let’s look at the Goldman Sachs 10,000 Small Business Voices research. This soon-to-be-released survey indicates a clear need among small businesses for additional policy efforts to help with post-Covid recovery.

It came as no big surprise to us that cash flow, or the lack of it, is among the biggest challenges small businesses face today. According to the research, 44 percent of small businesses have less than three months of cash reserve on hand. At the same time, just 31 percent of small businesses indicate they’d be confident in securing working capital. 

We “know” that cash flow has always been a key indicator of small business success. So it is not a surprise that so many businesses report having just three months of cash on hand. While that may seem dire, we shouldn’t look past the fact that according to the SBA 20% of small businesses fail in the first year. And 50% go belly up after five years. Only 33% make it to 10 years or longer.  

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Blessed with Low Interest Rates

The small business world is fortunate that interest rates remain at record low levels. Notably, 41% of respondents to the Goldman Sachs survey were concerned about the amount of debt they’ve accumulated during the pandemic. They fear it will make it more difficult for them to get back to normal profit and loss results.  

Here’s what Joe Wall, National Director of the Goldman Sachs survey had to say “Eighteen months of COVID-related economic headwinds have battered America’s small businesses. While many storefronts are reopening, small business owners from across the country are sending a clear message that they need more relief in order to continue on their road to recovery.”

The study involved 1,145 small businesses in 48 states. We assume this excludes Alaska and Hawaii. We’ll keep an eye out for the full survey. The data was collected between August 30 and September 1. 

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Not Your Parents’ Great Recession

Here’s some other interesting data we found. This comes from the National Bureau of Economic Research. It’s an organization founded in 1920 that claims to be “conducting and disseminating non-partisan economic research.” 

So this data comes from one John C. Haltiwanger who relies on data from the U.S. Census Bureau for applications for Employer Identification Numbers (EINs).  Haltiwanger found is that EIN applications dropped from March 2020 to May of 2020 — the first big wave of the pandemic. In July 2020, EIN requests hit an all-time high. From August 2020 through April 2021, EIN requests were higher than at any time from 2004 to the onset of the pandemic. 

Further, here’s a nugget from Haltiwanger’s research that should propel Shopify’s growth. “Three-quarters of the recent surge in startups was concentrated in just 10 industries, including non-store retail, which accounted for a third of the growth.”

He went on to compare the current situation to the Great Recession, circa 2008. What he found is that during that crisis, the growth of employer startups was considerably slower than what he found in the last 18 months. He speculated that today’s financial conditions are more robust than in the aftermath of the Great Recession.

We’d be quick to add this. Over the last 13 years since the Great Recession, the technology resources available to a local small business make it easier than ever to launch a business. These tools include great financing resources. And they include better and less expensive technology for everything from invoicing to inventory management. 

As for cash flow, we believe technology can also provide an assist here. By leveraging smart technology, for example, business owners should be able to hire more efficient management teams. 

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