Relay has officially published results from its Cash Flow Compass survey, which took into account the perspective of more than 750 small and medium businesses (SMBs). According to certain reports, the stated survey revealed how an estimated 42% of the surveyed companies are overconfident in their money management, thus reflecting significant gap between the perception and reality of cash flow control among owners. This the survey determined through specific questions that assess profitability, runway, missed payments and other factors. Not just that, the whole exercise would also go on to reveal the impact of such overconfidence, with well over 62% admitting cash flow issues have had negative effects on their business in the past year, such as missed growth opportunities, delayed projects, or reduced staff hours. Before we dig into the results, though, we must try and unpack the methodology through which they were realized. For instance, conducted by Research+Knowledge=Insight (RKI), the survey took the opinion of businesses with annual revenues worth $240,000 or more and 2 to 499 employees (with most businesses having 2 to 99 employees, and some representation from those with 100 to 499 employees). Markedly enough, the margin of error for the survey was understood to be +/- 3.6 percentage points, 19 times out of 20.
“Having a realistic grasp on your cash flow is crucial for any small business,” said Mike Michalowicz, serial entrepreneur and Creator & Author of Wall Street Journal bestseller titled Profit First. “Relay’s report reveals business owners are overconfident and that can lead to risky decision-making. The fastest way to get a better understanding of your cash flow is to organize your money with accounts based on the purpose of those dollars. Why? Because your bank account is where you’ll go to understand if you have enough money for your next expense.”
Turning our attention towards the results, they begin by revealing the sheer commonality of cash flow issues, as almost 91% business owners and managers were deemed to have this problem. The top three causes for the same were discovered to be rising labor costs, seasonal fluctuations in business, and late payments from clients. Next up, the study informed us on how, despite checking their bank balance daily, most businesses are still missing the full picture when it comes to their cash flow. This includes a contingent of 95% business owners who take financial decisions based on their bank balance alone. Against that sizeable faction, no more than 24% owners are organizing their income across different accounts, something which is likely to offer a more granular and accurate view. Moving on, the survey further revealed that an estimated third of all surveyed businesses actually missed a big payment in the last year. The stated payment included expenses like their own salary, supplier bills, and rent. Rounding up highlights would be a detail which claims that these cash flow struggles have also taken a real toll on business owners’ health. To contextualize that, we ought to touch upon those than two thirds of small business owners (71%) who say cash flow issues have had a negative impact on them personally, including severe events of stress, anxiety, burnout, and lack of sleep etc.
“When small business owners are in control of their cash flow, they can explore growth opportunities and square off against economic curveballs. Cash flow clarity also means owners can sleep better and can reduce their stress, which is important to the success of any business,” said Yoseph West, Co-Founder and CEO of Relay. “There is a powerful optimism at the heart of every small business, but sometimes that optimism can skew a business owners’ perception of their cash flow control, and that shows up in the Compass.”
