In a new study done by JPMorgan Chase, results show that even small businesses in capital intensive, high-wage industries would struggle to stay in business if its cash inflows were to halt. For small businesses in labor-intensive, low-wage industries, the struggle would be more severe. The study found that half of small businesses surveyed only had a large enough cash balance to survive 27 days in the face of a month-long loss of cash inflows. Twenty-five percent of small businesses would be able to maintain operations for less than 27 days, with restaurants only lasting 16 days. The median cash balance (the amount of money left over in all checking and savings accounts after all debts have been paid) for small businesses surveyed across all industries is $12,100; high-tech manufacturers close the day with more, with $34,200, and personal services close out with less, with just $5,300 in cash balances. Clearly, cash flow is of major concern for small businesses in every industry, but especially those in labor-intensive, low-wage industries, like personal services, construction, retail, and food service.

Half of small businesses only have a large enough cash balance to survive 27 days in the face of a month-long loss of cash inflows  Tweet This

Education around cash flow management could be crucial for small businesses to help them be prepared for an inflow crisis. By being aware of a vendor’s or supplier’s payment history, business owners may be able to assess cash flow risk, or determine if they would be able to work with a business that may not always pay on time. When equipped with these insights, business owners may be able to lengthen their cash buffer days and avoid cash flow crunches, which may be able to help keep them in business longer, in the event of a crisis.

One way to gain access to these insights is to purchase a business credit report on a company before contracting with them. By looking at the company’s Dun & Bradstreet business credit file, you can see details such as payment history, risk of default, risk of bankruptcy and more. You can also see the company’s D&B scores and ratings, which may be able to help you decide if you want to contract with the company. With access to these insights, you may be able to avoid cash flow problems for your small business, and be able to maintain operations longer in the event your cash inflows cease.

See the full study “Cash is King: Flows, Balances, and Buffer Days” from JPMorgan Chase & Co.

Photo Credit: mishmarshmallow, Twenty20