According to a new study, cash flow struggles affect a majority of small businesses around the world, with nearly a third experiencing cash flow issues causing them to be unable to either pay vendors, pay back pending loans, or pay themselves or their employees.

Focusing on the cash flow challenges specifically experienced by small businesses and the self-employed, “The State of Small Business Cash Flow” was released by Intuit Inc, provider of financial management solutions.

The study was conducted in the second half of 2018 by Wakefield Research, surveying 3,000 small business owners of companies with less than 100 employees in the US, UK, Australia, Canada and India.

Ensuring that expenses don’t become more than revenue or profits can be a challenge for small business owners, with 61% of small businesses admitting they struggle with cash flow. Nearly a third (32%) are unable to either pay vendors, pay back pending loans, or pay themselves or their employees due to cash flow issues and 69% reported that they have been kept up at night by ongoing concerns about their cash flow status. 

“Every day, small business owners fight to deliver amazing products and services for their customers, but – with 50 percent of small businesses going out of business within five years of opening their doors – the odds are stacked against them,” said Alex Chriss, General Manager, Small Business and Self-Employed at Intuit. 

“The top reason for failure is the cash flow crunch and lack of flexible options. With this survey, we set out to understand the why and how behind the crunch, and what Intuit QuickBooks can do to help,” said Chriss.

The result of failing to maintain a balance of money in and money out can be significant. Issues created by insufficient cash flow have caused half of the Australian small businesses surveyed (50%) to lose $10,000 or more by foregoing a project or sales. This is also true for 52% of US small businesses, 51% of UK small businesses, 41% of Canadian small businesses, and 23% of Indian small businesses.

What’s driving cash flow problems for small businesses and the self-employed?

Although cash flow problems can seem to be a funding issue, for many of the small businesses and self-employed workers struggling with cash flow, the problem isn’t a lack of funds in the pipeline – it’s that these funds are not readily available for real-time expenses. One third (33%) of U.S. small business owners estimate their company currently has more than $20,000 in outstanding receivables, and the average U.S. small business has $53,399 in outstanding receivables.

Small businesses’ billing practices are key to understanding these high amounts of outstanding receivables. Nearly two thirds (66%) of 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 (34%).

However, nearly a third of small businesses (31%) estimate it takes more than 30 days to get paid, by customers, clients, vendors or banks. During this month of lag businesses still need to cover expenses including overhead and labour costs – thus creating cash flow woes.

Advanced payment – charging customers for goods/services before or at the time of receiving them – could be more widely utilised, with more than half of small businesses globally (53%) bill customers for goods/services on a specific date, compared to 47% that utilise advanced payment.

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