B2B Payments

Cash Flow Worries Limit SMB Hiring

Some of the world’s largest conglomerates are raising concerns about an impending economic recession in the U.S., supply chain disruptions stemming from trade disputes and a global market shakeup from Brexit. However, as analysts explore the current state of the economy (and where it’s headed), they’re also turning to small businesses (SMBs), with outlooks that can similarly offer an accurate gauge about economic health.

In the U.S., small businesses are growing. A new report from ScaleFactor found that most businesses with fewer than 500 employees are reporting revenue increases, while separate analysis from KeyBank revealed that about half of SMBs are saying they have the finances in place to fuel that growth.

Yet, unsurprisingly, there are challenges to expansion, particularly when it comes to hiring, cash flow management and balancing financial management with running the rest of the business. Technology, analysts said, will be essential to addressing these challenges.

“The data from our inaugural report highlights the fact that small business owners have a lot on their plate, from running the business to performing back-office tasks,” said ScaleFactor CEO and Founder Kurt Rathmann in a statement. “We are experiencing a new phase that refocuses on capturing the efficiencies of an intelligent workforce through the use of insightful and prescriptive technology.”

KeyBank researchers agreed.

“Not only does the AI-driven program supply business owners with the industry intel they need to stay competitive, [but] it also helps us better understand our clients and offer personalized expertise,” said KeyBank President of Business Banking Kip Clarke.

Below, PYMNTS looks at some of the latest data points from researchers exploring the state of small business financial management in the U.S., plus a bit of insight from the U.K.

Seventy-six percent of small businesses surveyed have no plans to hiring a chief financial officer in the future. Finances remain a key focus for these firms, however, particularly in a climate of significant growth: Only 4 percent of companies surveyed by ScaleFactor said their revenues declined between 2018 and 2019. Despite that growth, half of the companies did not hire new staff in the last year, pointing to salary costs as the largest deterrent to new hiring.

Fifty-one percent of small firms said their financing needs are met, KeyBank’s first Small Business Wellness Index found. SMBs’ top financial goals are to increase working capital; purchase equipment, vehicles or inventory; and expand products, services or locations.

Forty-three percent of SMBs said cash flow is their largest business challenge today, KeyBank research revealed. That’s followed by 24 percent that pointed to operating costs, and 14 percent that said financial control, are their biggest concerns.

Forty-three percent of SMBs with between 20 and 99 employees said credit cards are their top funding sources. ScaleFactor’s findings compared with the 34 percent of the smallest SMBs (those with between one and 19 employees) that said they reinvest company profits to propel growth. Meanwhile, the larger SMBs (with up to 500 employees) said they pursue loans from traditional financial institutions to finance growth ambitions.

Forty-two percent of small businesses polled don’t currently use a back-office accounting software solution, ScaleFactor found. Of the rest that do, business owners pointed to time saved and fewer errors as their top benefits to the technology. According to researchers, the larger the SMB, the more likely it is to have an accounting software solution in place. Despite the majority of firms saying they have a solution in place, and despite most SMBs reporting that they have adopted artificial intelligence or machine learning software, researchers found that a majority of the polled companies are unaware of the full capabilities of financial software. Bookkeeping is the top task completed by financial software already in use, followed by invoicing and payroll.

Twenty-four percent of U.K. small businesses said managing travel expenses and payments is a stressful process, with travel and expense administration the biggest concern for firms surveyed by Allstar Business Solutions. More than one-fifth said cash flow challenges are their largest concern, with business owners worried about their employees spending too much at hotels or on fuel.

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Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 Pay Advances: The Gig Economy’s New Normal, a PYMNTS and Mastercard collaboration, examines pay advances – full or partial payments received before an ad hoc job is completed – including how gig workers currently use them and their potential for future adoption.

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