Report Claims Small Businesses Have Experienced Severe Cash Flow Impact from Inflation in the Last 6 Months

New Report Highlights the Impact of Inflation on US Small Businesses

A recent report released by Xero, a global small business platform, has shed light on the impact of inflation on the cash flow of US small businesses. The report, titled “Money Matters: The impact of economic conditions on the cash flow of US small businesses,” surveyed over 500 small business owners across the country to understand the challenges they face in managing their cash flow.

According to the report, 48% of US small business owners have experienced a significant or high impact from inflation on their cash flow over the past six months. Additionally, 44% expect inflation to continue to have a similar impact in the next six months. The rising inflation and increasing interest rates have resulted in tangible consequences for small business leaders, with 45% of them having to sacrifice their own paychecks, and 43% reporting missed business opportunities.

The combination of higher inflation and rising interest rates has led to increased costs of raw materials, labor, and energy, while reducing consumer purchasing power. This has posed significant challenges for small businesses’ cash flow. The report emphasizes the importance of financial resilience and effective cash flow management for the success of small businesses in the current economic uncertainty.

The survey also highlighted some key insights into the short-term financial challenges faced by small businesses. Limited or inconsistent cash flow (40%) and no cash reserves for unforeseen challenges (29%) were identified as the top financial challenges over the past 12 months. Cash flow issues have also caused small business owners to struggle with paying themselves (45%) and paying bills (22%), with 17% being unsure if they can keep their businesses running.

Moreover, cash flow issues have taken a toll on the personal well-being of small business owners. 58% of respondents believe that cash flow issues have negatively impacted their personal well-being in the past year, with stress (84%), anxiety (79%), and sleepless nights (64%) being the top three impacts. These financial obligations have spilled over into their personal lives, with 42% missing out on time with family and friends, and 33% experiencing a decline in their diet and exercise routines.

Given the increasing challenges, small business owners are prioritizing cash flow management more than ever, with 85% considering it a strong or very strong priority. To improve cash flow, small business leaders have adopted various strategies, such as increasing prices (48%), reducing overheads (43%), and decreasing marketing spend (34%). Additionally, providing customers with a variety of payment options, including credit cards (70%) and online payment gateways like PayPal (62%), has been a key approach to managing cash flow.

The report also highlights the importance of digital solutions for tracking cash flow health. While 70% of small business leaders use digital tools to review their cash flow, there are still many tools not fully utilized. Surprisingly, 55% do not use accounting software to track payments, and 56% have not set up invoice payment services. Only 11% utilize a tool for cash flow forecasting and long-term financial planning.

Ben Richmond, US Country Manager at Xero, emphasized the role of digital technology in cash flow management. He stated, “Digital technology plays a crucial role in daily cash flow management by helping businesses monitor cash coming in and out. Additionally, we know that customers who accept digital payments on Xero online invoices get paid up to twice as fast as those who don’t use online invoice payments. Getting these types of digital technologies in place can make a big difference to a business’ survival in tough times.”

The Small Business Cash Flow survey conducted by Xero was based on responses from 542 small businesses with up to 50 employees. The survey was conducted online by Researchscape International between June 15 and June 20, 2023.

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