Cash flow is the lifeblood of success for small businesses. It determines the ability to pay vendors and leases, apply for loans and ultimately take home a profit. When mishandled it can have negative implications, contributing to the tarnishing of relationships, forcing businesses to forgo projects and impairing investment opportunities.
Intuit recently completed a global survey unpacking the state of small business cash flow in Canada, with some surprising results. We found that nearly 2 in 3 (64 per cent) Canadian small businesses have experienced cash flow issues at some point, and 29 per cent have not been able to pay their employees. In sharing more of our results, I’d like to shine a light on the different ways cash flow issues are impacting Canadian small businesses and offer my thoughts on what small business owners can do to better manage their cash flow.
Having the ability take advantage of opportunities that arises can expose small businesses to huge growth opportunities. However, on average, Canadian small business owners lose $28,885 by foregoing a project or sales specifically due to issues created by insufficient cash flow. To put this in perspective, this could be the difference in hiring a part-time employee or paying a lease to turn an e-commerce enterprise into a brick-and-mortar store.
The lost projects or sales take a toll on a company’s bottom line, with more than 2 in 5 (41 per cent) of Canadian small business owners’ losing $10,000 or more by foregoing a project or sales specifically due to issues created by insufficient cash flow. It’s important to note that even though companies often have money on the way, they’re still forced to say no to opportunities if they don’t have cash flow available at the time of the ask. It’s easy to think big and chase opportunities, but money needs to be available, or the answer must be no.
Businesses thrive on building positive relationships, whether they be between customers, employees or vendors, they are all key in building long term success. It’s important to nurture and invest in these relationships, and not having access to enough cash flow can result in small businesses missing payments, or not have the money to pay people at all.
Among small business owners who have had cash flow issues, nearly a third (33 per cent) have been unable to either pay vendors, pay loans, or pay themselves or employees (29 per cent) at one point in time. When payments get unpredictable, it’s a safe bet that employee loyalty will be strained. As employees can often be in a customer facing position, it’s important they are committed to the business’s success.
Although a small business may have money on the way, not having access to cash flow can deny opportunities for business owners to invest in themselves. It’s not that businesses aren’t getting paid, it’s that they don’t have access to the money coming into their businesses for weeks on end.
In fact, more than 3 in 5 (62 percent) Canadian small business owners report that the time it takes the money to process after receiving a payment has the largest impact on their company’s cash flow compared to not getting paid by customers or clients within the terms of the payment system (38 per cent). Financial standstills cost more than just money, they cost small businesses the ability to invest in opportunity and growth.
Long term success doesn’t just happen, it’s the result of strategic planning and utilizing smart solutions that set up businesses for success.
Seeing the frequency and extent of cash flow issues in small businesses poses the question, where should small businesses put their time and money?
In my opinion the two most valuable things small businesses can focus on when trying to stay on top of cash flow are using integrated business platforms and strategic planning.
- Choosing smart business tools: Technology and apps are a small business owner’s best friend, especially integrated platforms that have everything in one spot. Using a software like QuickBooks, an integrated ecosystem of products that can track expenses, record invoices, and project earnings while constantly adding new features based on what is needed, will help small business owners streamline finances, staying on top of their business’s cash flow.
- Plan for the expected (and unexpected): Planning is key for small business success. Most financial software will have forecasting tools, which provide realistic snapshots of the future, allowing for smarter planning. For small businesses, smart planning better positions them to have cash flow available to say yes when opportunities arise and prepares them to withstand unexpected changes and fluctuations that could negatively impact their business.
For small businesses in Canada, it’s clear that cash flow uncertainty is a common experience for business owners and entrepreneurs. Solutions do exist. By implementing smart systems and thinking ahead, small business owners can save time and money, helping ensure long term success for their business.