Managing Cash Flow Digitally Helps SMBs Weather Seasonal Ups and Downs

They say time heals. How much time? Does 24 months sound about right?

That’s how long it’s been since the public health emergency was declared in the U.S. in 2020, and the world as we knew it changed. Now it wants to change back, at least to reclaim the best parts of pre-pandemic living, and 2022 looks like the real deal after a series of false starts.

As we watch this unfold in coming months, the restaurant sector will act as a particularly sensitive barometer for the success or failure of retail recovery. As much as we’ve relied on eCommerce, the health of Main Street small- and medium-sized businesses (SMBs) will be more impactful.

Speaking with PYMNTS, Prashant Gandhi, chief business officer at Melio, and Adam Dunn, owner of beloved Cape Cod restaurant The Pheasant in Dennis, Massachusetts, highlighted the urgency around cash flow for Main Street businesses in the pivotal summer season that’s fast approaching.

Dunn said reservations are packed for Memorial Day weekend and beyond. But with some costs having risen as much as 400%, he’s faced with passing price increases on to customers. A bigger cash cushion might forestall that tough choice, and that’s where Melio comes in.

“We know the demand is there,” Dunn said. “The question is going to be holding onto that cash. We’re a seasonal location, so things slow down. It’s managing that cash and making smart investments that have returns. We don’t know what next season looks like.”

It’s a problem many SMBs are facing right now. In “The Main Street Economic Health Survey: Navigating Economic Uncertainty,” a PYMNTS and Melio collaboration, 18% of SMBs surveyed had no cash on hand in January 2022. It’s a jarring discovery calling for action.

“We were also quite surprised by that stat,” Gandhi said.

“Our customers tell us that they love to have 30 days’ worth of cash [on hand]. To see 18% saying that they’ve got no cash on hand was disconcerting.”

He added that “at some level it’s not entirely surprising, because inflation at 8% effectively means that in the last 12 months we’ve had the same amount of price [increase] as we’ve had in the last four years.”

And that number moves up near 24% for businesses open a year or less, showing the extent of the cash-flow crunch threatening the Main Street SMB comeback.

Gandhi said it reveals that too few new SMBs are baking cash flow into planning, and Dunn’s math tells us that this is the absolute wrong year to put cash flow on the back burner.

“A dishwasher that used to make $16 an hour is now making $20 to $24 an hour because of demand and rising wages,” Dunn said. “If we were to pass these prices directly onto customers, I think there would be such shock we’d have a real hard go.”

Get the study: Main Street Economic Health Survey: Navigating Economic Uncertainty

Parting With Paper

In a large 250-year-old colonial farmhouse heated by propane and charmed by the light of wood-burning fireplaces, The Pheasant was also burning cash too fast. Dunn needed a solution. Describing his back-office life prior to platforming, he recited the all-to-familiar paper litany.

“I handle all of our payments, invoices, processing, everything. Prior to [Melio] I was printing checks, I was messing up the checks, having to reprint them, running out of checks, had to order new checks, had to go get stamps, kept running out of stamps, open the box of envelopes, they’re all stuck together, now I have to go back to get more envelopes.”

He started using the Melio platform, which he said “is a game-changer for us.”

For starters, The Pheasant no longer needs a general manager. Dunn and his wife are handling all back-office duties themselves, using Melio’s integration with Intuit accounting software.

“Now I can go on vacation when we’re closed in the winter and still cut checks and have them processed for vendors,” Dunn said.

“It’s been a huge advantage to me, especially as we’re consolidating and trying to provide services to guests and experiences, but that means getting skinnier in other places, [like] streamlining operations in the back end.”

That’s how it can look when an SMB shifts digital in time for high season.

Gandhi said this is happening across verticals as SMBs grasp the new cash-flow criticality.

“Our customers are systematically looking at investments to deal with the fact that the world of self-service at the back office is here,” Gandhi said. “You don’t have the luxury of having too much of a staff. That’s true for Adam’s business, and I think it’s true for many other types of small businesses.”

The Main Street Economic Health Survey also found that 41% of all SMBs intend to invest in equipment and systems in 2022.

Gandhi pointed to a variation between online and offline businesses in that finding, saying, “47% of those who sell online are looking to make investments, [compared to] 32% of those that are largely physical. This is telling us there is still more optimism for our small businesses who have shifted to online channels because they view that as a source of continued growth.”

Get the study: Main Street Economic Health Survey: Navigating Economic Uncertainty

Targeting Profitable Growth

The Zen master famously said “we’ll see” when it came to anything in the future, but small businesses can’t count on that. They’re investing during a highly volatile economic period.

While Dunn feels his cash-flow management is in good shape, and if the high season lives up to its name he has plans to renovate, lose the propane, and try new ideas that require less staff.

“We’ve been pushing into wine heavily, doing a curated boutique wine program here at the restaurant,” he said. “Demand has been crazy, so we feel there’s a natural extension by creating a wine shop. But that’s one employee. It is a very simple concept that we can execute with minimal staffing. The idea of another restaurant with 20 to 50 employees is kind of terrifying.”

Citing another stat from the Main Street Economic Health Survey, Gandhi noted that 57% of Main Street businesses expect 2022 to be a growth year. That depends on a few factors.

Saying “profitability is the key,” he said Melio’s four-part advice to clients, prospects and SMBs generally is, “Keep differentiating the experience. Adopt cash-flow management tools. Adopt convenient workflow tools. Also work on your credit worthiness. Credit is going to be an important lever for well-functioning businesses.”

As for Dunn, he sees a more bifurcated dining world emerging, dominated by fast-casual and on-premises experiential dining out.

“We’re moving in that [experiential] direction, and it’s unfortunate because we have friends, regulars, people who live around here who are inevitably are going to be priced out or won’t be able to join us in the frequency they were accustomed to,” Dunn said. “There’s just no way to do it.”

Get the study: Main Street Economic Health Survey: Navigating Economic Uncertainty