Small Businesses Struggle with Cash Flow

Today’s Wall Street Journal has a story about the struggles of small business owners with cash flow, by Kelly K. Spors and Simona Cova  (page B1 of the print edition).  This excellent article describes how “a growing wave of late payers is hurting many companies that were already reeling from the economic crisis themselves.”  The authors do a good job of explaining this challenge, as follows:

Small businesses are hugely dependent on their cash flow, so they must either cut costs or scramble to find alternative funding if they aren’t being paid on time. With money tight and bank loans hard to get, a cash-strapped company can easily be pushed to the brink.

 

Making matters worse, big companies typically delay payments to their smaller suppliers first — in part because small businesses are unlikely to have teams of people devoted to chasing down their accounts receivables.

 

This story mirrors responses that Chief Economist Chad Moutray received from a Linked In question posed a couple weeks ago, which asked for responses on small business challenges and opportunities.  This question was posed in conjunction with Dr. Moutray’s paper on the same topic.  While the paper focused on the longer term, the Linked In respondents concentrated on their current economic problems.  Several people noted small business owners’ current problems accessing credit and cash flow, which is “placing a squeeze on otherwise healthy businesses.”  One person noted a “slowdown in sales of goods and services.” This echoes the most recent National Federation of Independent Business survey, which finds that poor sales are now the top problem for small business owners. 

With that said, the economic downturn also presents some opportunities for small businesses who are able to be nimble and creative.  Yes, now is the time to “get back to basics” and watch expenses, but it is also a time to explore new avenues.  Now, for instance, might be the time to grab market share from larger competitors who are retreating from some business areas.  Another factor is the ability of small firms to adapt and learn from others.  In this vein, a couple Linked In respondents noted the importance of learning from other successful businesses and adopting similar techniques to weather the economic downturn.

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