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If you're struggling to save money and survive, you are not alone. Many of the country's small businesses are essentially living month-to-month.
A new study from the JPMorgan Chase Institute showed that the average small business has just 27 days worth of cash reserves. So what is life like for small businesses living on the financial edge?
Money in the Bank
The study looked at cash buffer days: "the number of days of cash outflows a business could pay out of its cash balance were its inflows to stop." While 1 in 4 small businesses are living relatively comfortably, with 62 or more cash buffer days, the vast majority couldn't go two months without income. Overall, the average daily income for most small businesses was only $7 more than their expenditures, making it almost impossible to save money or expand.
Where the lack of savings can really hurt small businesses is if they have to close unexpectedly or have any break in income. According to the report, a quarter of small businesses wouldn't be able to make ends meet after missing two weeks of income.
But not all small businesses are created equal, and not every industry suffers the same cash-strapped problems. Real estate companies averaged the highest number of cash buffer days, with 47. Restaurants, on the other hand, had just 16 days worth of cash reserves. Retail stores average 16 cash buffer days, health care services 30, and high tech companies averaged 33 cash buffer days.
Scraping by day-to-day can be especially dangerous for those small businesses, like restaurants, whose daily cash inflow can be volatile. According to the report, restaurants on average bring in just $11 more than they spend each day, with retailers making just $4 more a day. Living on such thin margins can be stressful, and small business owners must have an accurate view of their debts and liquidity if they want to survive.
An outside pair of eyes can always help when it comes to your small business's financials. Contact an experienced commercial attorney in your area if you want help putting together your business's future.