Small business owners are, on average, 42% overconfident in their money management, according to a new survey of more than 750 SMBs by online banking and money management platform Relay and independent research company RKI. This overconfidence score reflects a significant gap between the perception and reality of cash flow control among owners, which was determined from an assessment of profitability, runway, missed payments and other factors.
Outlined in Relay’s new Cash Flow Compass report, the survey also unearths the impact of this overconfidence. While most business owners believe their cash flow control is strong, the Cash Flow Compass reveals that 62% admit cash flow issues have had negative effects on their business in the past year, such as missed growth opportunities, delayed projects, or reduced staff hours.
The Cash Flow Compass explores the survey findings with commentary from small business advisors and other business leaders, including Mike Michalowicz, author of Profit First.
“Having a realistic grasp on your cash flow is crucial for any small business,” said Michalowicz. “Relay’s report reveals business owners are overconfident and that can lead to risky decision-making. The fastest way to get a better understanding of your cash flow is to organize your money with accounts based on the purpose of those dollars. Why? Because your bank account is where you’ll go to understand if you have enough money for your next expense.”
Relay’s Cash Flow Compass combines new data on small business cash flow, actionable expert advice, and a cash flow quiz so SMBs can measure their cash flow control.
Key findings include:
- 91% of business owners and managers have cash flow issues. The top three causes are rising labor costs, seasonal fluctuations in business, and late client payments;
- 95% of small business owners make financial decisions based on their bank balance alone;
- Only 24% organize their income across different accounts, which offers a more granular view.
- 31% of U.S. SMBs have missed or been late paying major expenses, such as their salaries, supplier bills, and rent.
- The top two negative results of cash flow issues are missing out on growth opportunities and delayed or cancelled projects.
- 71% of SMB owners say cash flow issues have had negative personal impacts, such as stress, anxiety, burnout, and lack of sleep.
- More than 33 million small businesses employ more than 62 million people and contribute nearly 44% of GDP.
“When small business owners are in control of their cash flow, they can explore growth opportunities and square off against economic curveballs. Cash flow clarity also means owners can sleep better and can reduce their stress, which is important to the success of any business,” said Yoseph West, co-founder and CEO of Relay. “There is a powerful optimism at the heart of every small business, but sometimes that optimism can skew a business owners’ perception of their cash flow control, and that shows up in the Compass.”