Skip to content

Cashflow Kills Small Businesses

"Cashflow kills small businesses.” We’ve all heard it time and time again. We’ve seen it too. The number of businesses that survive their first year has always been abysmal. But there’s never really been any explanation as to why this is the case.

In order to get a clearer picture as to why cashflow is such a huge problem for early-stage businesses, we commissioned a study with Censuswide, asking small business owners what their biggest concerns were and what’s holding them back.

The results confirmed many of our suspicions – as the statement above suggests, we all know cashflow is the biggest problem these business owners face. In fact, only 3% of respondents said they had no cashflow problems whatsoever and 93% said cashflow was one of their top three priorities. But why cashflow is such a problem is quite unexpected and a little more complex.

 

Entrepreneurs, not finance experts

Cashflow is quite a complicated topic. In fact, in large organisations, there are whole departments dedicated to managing cashflow. Smaller businesses can’t afford that luxury, and depending how far they are on their journey, they likely don’t even have a dedicated finance role.

That means it falls to the owner of the business to juggle cashflow, accounting, invoicing and every other finance responsibility – on top of marketing, sales, production, operations, HR and every other role required to manage and grow a business. So not only are entrepreneurs ill-equipped to deal with such a complicated area of finance, but they also just don’t have the time to dedicate to it.

Our research showed that 61% of small business owners did not consider themselves knowledgeable in business finances when starting their company and only 16% have ever taken a course in managing business finances (the majority are self-taught).

It shouldn’t be a surprise that they’re not knowledgeable in business finances – it’s not what they went into business to do. It’s clear how cashflow becomes such a big issue, but the question remains: why?

 

A lack of confidence in cashflow

And here we get to the crux of the problem. Entrepreneurs obviously have confidence in their business idea. Watch any episode of Dragon’s Den or the Apprentice, and you’d argue entrepreneurs stereotypically have too much confidence in their business. But that’s because, behind the scenes, it has been their bread and butter for years. They know it inside and out and they’re extremely passionate about it.

Cashflow, on the other hand, only distracts from their goals. More than two thirds of business owners say managing day-to-day business finances ‘completely’ distracts from growing their business.

Not only that but they lack all the confidence they show in their business idea, and paradoxically, it’s stopping them from growing their business.

Over 80% of small business owners admit big customer wins ‘scare’ them from a resourcing and affordability perspective. Many are rejecting big contracts because they don’t feel confident enough to take them on. This is where the heart of the problem lies.

 

Confidence without the cost

The obvious answer here is to hire a finance expert or team and invest lots of time and resources into fixing this area of business – but it’s just not plausible. There are so many other plates to spin, and business owners still need to focus on keeping them all spinning. The delicate ecosystem of a small business requires a fair distribution of investment. So what is the answer?

Well, the problem that can be solved is providing visibility. Four in five business owners (82%) say having a clearer picture of cashflow forecasts would cause them less stress. Three in five business owners (58%) agree with us that the best solution is a forecasting tool to understand cashflow problems with short-term financing options to bridge gaps.

Such a product would empower business owners to take control of their business finances without the need for them to be experts. It will make them more strategic controllers of their finances and the future of their company, rather than adding copious amounts of work, responsibility and cost onto an already heavy schedule.

That’s why we created Monspire. In a world of unpredictability, making one of the hardest parts of business more certain in an effortless way is the best step forward for entrepreneurs and has the potential to transform the number of businesses that make it through their first year.

Entrepreneurs do not need to be finance experts – in fact, they shouldn’t, instead focusing on why they went into business in the first place – they just need the right tools. Monspire can help you join the dots and grow your business with confidence.