Microbusiness Financial Challenges Outlined in Wave Study

Microbusiness owners are hurt by the delay in receiving payments, results of a survey by small business money management solution Wave suggest. The company surveyed more than 1,000 owners of companies with fewer than 10 employees.

One in four respondents have waited more than a year to get paid or haven’t been paid at all for work. Seven in 10 have waited between one and six months to get paid as a result of overdue invoices. Note that 91 per cent of American businesses are microbusinesses.

The survey exposed widespread financial challenges among this group, from getting paid to poor bookkeeping habits. Business owners are also taking key steps to digitize their businesses and seize new opportunities during the pandemic, and are confident as economies reopen and vaccine rollouts continue.

Top customer excuses for late payments are not having the money (34 per cent), forgetting (33 per cent), claiming to have never received the invoice (24 per cent), and being on vacation (13 per cent). As a result, three in 10 respondents have had to borrow from personal funds to cover business expenses, nearly one in five have had to borrow from family or friends, and the same number have had to forgo or reduce their own paycheck. Additionally, 13 per cent have been forced to take out a loan, one in nine have had to take up another job, and eight per cent have had to sell off a family heirloom or another valuable in order to cover business expenses.

The most common digital practices that started during the pandemic and are expected to continue include virtual services like sales, consultations, and quotes (27 per cent), accepting digital payments (21 per cent), adopting digital banking/checking (15 per cent), and sending digital invoices/bookkeeping (eight per cent). On the flipside, some plan to end pre-pandemic practices like visits to bank branches to deposit checks (18 per cent), in-person meetings with an accountant to file taxes (13 per cent), and paper invoices/bookkeeping (12 per cent).

According to research conducted by the Peterson Institute for International Economics, the number of business startups in the US grew from 3.5 million in 2019 to 4.4 million in 2020, a 24 per cent increase.

Looking ahead, business owners are confident and motivated as vaccine rollouts and economic recoveries continue. Nearly two in five (39 per cent) feel even more motivated to continue working for themselves, 35 per cent are confident about the financial future of their business, and  34 per centt say business has increased since vaccine distribution began.

Microbusiness owners admit to poor money management habits. Nearly two in five respondents (38 per cent) say they use their personal checking account for business expenses, while 29 per cent say they do not separate personal and business finances at all—a practice that can lead to missed deductions and complex tax filings. More than one in five (22 per cent) say they use a pen and paper to track their finances, and 14 per cent use an Excel spreadsheet. Fourteen percent don’t follow up with customers on outstanding invoices, and 13 per cent admit they forget to send or are delayed in sending out invoices in the first place. More than one in five (21 per cent) don’t log or track receipts, and one in nine rely on high interest financing to fund their business.

While some business owners accept digital payments, the majority rely on more traditional forms like cash (71 per cent), paper checks (61 per cent) and debit or credit cards (50 per cent).

With late payments from customers and widespread digital payment acceptance falling short, it’s no surprise 45 per cent cite cash flow as a major challenge. Moreover, respondents cite other barriers to cash flow like high bank account fees (27 per cent) and slow access to funds paid into their bank account (16 per cent) as key reasons why they would consider switching from their current banking provider.

“As small businesses rebound from the impacts of the pandemic, cash flow is key to ensuring both their recovery and their ability to thrive in the months and years ahead,” said Kirk Simpson, co-founder and CEO of Wave. “Our survey shows that—for many reasons, ranging from outdated practices to late payments—cash flow remains a major pain point for entrepreneurs. More than ever, small business owners need simple, intuitive money management solutions that help them get paid faster, and free them up to spend time doing the work they love.”

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