How are other small businesses managing their finances, what challenges must they overcome and what financial decisions have led them to success? A survey from CFED seeks to answers these questions [http://cfed.org/assets/pdfs/Understanding_the_Financial_Vulnerabilities_of_Michrobusiness_Owners_BRIEF_Updated.pdf], so that you can avoid pitfalls and incorporate the more successful ideas into your business.

Until now, what has been known about microbusinesses is that, although they contribute to the economy and to the business owner’s household income, they are often struggling to make ends meet and don’t generally build wealth. A survey of business owners from 43 states in the U.S. asked them about all aspects of their financial management and revealed 50 interesting facts:

1. One of the biggest worries for owners of small businesses is cash flow. They are often unable to meet payments when they are due because significant sums of money are owed to them.
2. Most microbusinesses don’t have sufficient long-term or short-term savings so they don’t have a cushion for emergencies, cash flow mismatches and business expansion.
3. Businesses which track their expenses via Excel are less likely to experience cash flow problems (only 22% report they suffer from this problem).
4. Businesses which rely on automated software or have a dedicated consultant or employee tracking expenses are more likely to have cash flow problems than those using Excel (59% and 64% respectively).
5. Many businesses fail to pay their taxes quarterly and are forced to pay in one lump sum at the end of the year, further aggravating their cash flow problem.
6. A large percentage of microbusiness owners have dipped into their household income to solve their business’ cash flow problem, by delaying or reducing a salary, or skipping a paycheck altogether.
7. Business owners who have significant household and business saving have a greater chance of succeeding, since they are prepared to weather financial setbacks.
8. But a full 30% say they have no business savings at all and another 38% report having only two months worth of expenses or less saved.
9. Credit and other financial products and services are difficult to come by, especially for small companies and startups. This fact further contributes to the business’ financial insecurity.
10. Lower-income businesses generally have a hard time accessing loans due to bad credit or lack of credit. When they are able to borrow, they generally face high interest rates.
11. Minority business owners (such as African Americans and Hispanics) are also challenged by lack of a good credit history.
12. Most business owners have not requested a loan and don’t plan to do so in the near future.
13. Among businesses which do borrow, the most common products are credit cards and credit lines.
14. Businesses which are not incorporated or do not have employees are less likely to borrow money.
15. The most commonly used financial product among business owners is a business checking account. Those who have business accounts are not using their personal bank accounts and credit cards for business purposes; rather, they keep their business finances apart from their personal finances.
16. The most popular business services after the checking account are: savings, credit card, financial management software, accountant, payroll, merchant services, tax preparation, bookkeeper, insurance broker and legal services.
17. 40% of small business owners view their household savings as more important than business savings.
18. 80% of those more concerned with their household savings say their business revenues have contributed to the family savings.
19. Of business owners who save, the top priority is retirement. Following retirement are education, emergency, business investment, and large purchases.
20. Business and household incomes are generally extremely intertwined. The household suffers when the business doesn’t succeed, but is significantly augmented when it does. This means that all business decisions have to take into account their influence on the family as well.

The CFED study shows clearly that the most successful businesses are those that are supported by significant savings or the ability to borrow when necessary. Businesses can avoid cash flow problems by keeping track of expenses with Excel and dipping into savings when necessary. Despite the importance of household savings, business savings should not be ignored, since they can make the difference between success and growth or failure.