UK SMB Owners Unable to Pay Themselves Because of Cash Flow Problems, Report Claims

Ongoing economic challenges have caused two in five (41%) small business owners to sacrifice their salaries, and one in three (34%) to use their personal funds, “to keep their businesses running,” according to new research from global small business platform Xero.

The Money Matters report found that economic fragility “is causing half (50%) of small business owners to worry about their financial futures. Almost three-quarters (72%) of small business owners admitted experiencing cash flow issues in the past 12 months, with one in 10 experiencing significant difficulties.”

The financial impact of these cash flow issues “is clear; the findings show that a quarter (24%) of small business owners are unable to pay company bills and overheads, and 18% experience stalled revenue.”

However, the effects also trickle down “to the personal lives of owners and operators.”

Of those who have felt a negative impact “from cash flow issues, eight out of ten small business owners are affected by stress (82%) and anxiety (80%), while almost two-thirds have trouble sleeping (60%). Similarly, the toll of these financial obligations is reflected in 35% reporting a worsening diet and 29% saying they are missing out on time with family and friends.”

Leigh O’Neill, EGM Money at Xero, said:

“Cash flow challenges are more than just balance sheet discrepancies; this research reveals they are deeply personal struggles for business owners. The inability to pay themselves, coupled with the emotional and physical ramifications, paints a poignant picture of the sacrifices and struggles inherent in running a small business.”

Unsurprisingly, inflationary pressures “have made managing cash flow a priority for many (62%) small businesses in the UK.”

The report also revealed “that 56% of small businesses have raised prices in the last year.”

Other strategies used to overcome cash flow constraints and stimulate revenue “include reducing overheads (35%) and reducing marketing spend (28%).”

Despite the perceived importance of managing cash flow, “the majority of small businesses are not using digital tools to help this process. Only 24% of respondents currently use accounting software to track payments, and just 8% use cash flow forecasting tools to help them predict and plan for future financial shortfalls.”

Half (51%) of small business owners “attribute inertia around digital tools to a lack of relevance, while a quarter prefer to manage payments using traditional methods (26%) or don’t think enough of their customers use digital payment methods to make adoption worthwhile (25%).”

O’Neill added:

“Perennial economic uncertainty underlines the importance of financial resilience for small businesses. We found that in the UK, many businesses were not leveraging the tools available to them. Small business owners have to find tools and strategies to manage cash flow that make their lives easier and crucially, plan for potential future cash flow issues.”

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