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.

5 Comments
  1. “With that said, the economic downturn also presents some opportunities for small businesses who are able to be nimble and creative.” I think this is very important and gives small business a chance to innovate.

  2. Debt Settlement says

    I agree, the economic downturn creates other opportunities, you just have to be creative.

  3. Vilambara says

    Yes, due to recession, banks were closed their doors for small business. Its difficult now a days to raise funds for our small business. Hope it will change soon.

  4. Phil DeMassa says

    Yes it is sad how the banks have closed their doors in these times. When we should be fostering economic stimulation. Now one way to make more profits is by cutting costs.There is no need to focus on the negative aspects of our environment. Focus on the new ways to raise funds and outsource work where applicable.By thinking differently you can overcome obstacles.

  5. Manjunath D S says

    When small businesses reeling under cash flow crunch, it is difficult to focus on capturing market share. Further, it needs preparedness. In other words, small businesses should develop a plan that would be implemented in case of recession to take full advantage of market shakeup. This is strategic in nature and only companies with enough forethought can achieve this. At the same time, any forward looking business will also provide for contingency funds to keep the business running in case of disruptions in its cash flow.

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