Small business owners are, on average, 42% overconfident in their money management, according to a new survey of 750+ small and medium businesses (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 the Compass determined through specific questions that assess 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 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 expert commentary from small business advisors and other business leaders, including Mike Michalowicz, serial entrepreneur and Creator and Author of Wall Street Journal bestseller, 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 organise 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.”
Michalowicz selected Relay as the official banking partner of Profit First for its ability to create multiple, individual no-fee accounts.
Relay’s Cash Flow Compass combines new data on small business cash flow, actionable expert advice and a first-of-its-kind cash flow quiz for SMBs to measure their own cash flow control. Key findings include:
- Cash flow issues are common: 91% of business owners and managers have cash flow issues. The top three causes are rising labour costs, seasonal fluctuations in business and late payments from clients.
- Owners check their bank balance daily but are missing the full picture. A whopping 95% of small business owners make financial decisions based on their bank balance alone. Only 24% are organising their income across different accounts, which offers a more granular view.
- Almost a third of businesses have missed big payments in the last year. According to the report, almost a third (31%) of US SMBs have missed or been late to pay major expenses, like their own salary, supplier bills and rent.
- Cash flow problems can kill progress. The Cash Flow Compass identified that the top two negative results of cash flow issues include, missing out on growth opportunities and delayed/cancelled projects.
- It’s personal: cash flow struggles take a real toll on business owners. More than two-thirds of small business owners (71%) say cash flow issues have had a negative impact on them personally. For example, causing stress and anxiety, burnout and lack of sleep.