Xero Reveals Inflation is Biting Into Cash Reserves of US Small Businesses

A recent study by Xero reveals that 48% of small business owners in the US feel the weight of inflation biting into their cash reserves, and the outlook remains bleak, with 44% predicting a similar trend in the coming months.

The report “Money Matters: The Impact of Economic Conditions on the Cash Flow of US Small Businesses” uncovers the challenges the larger macroeconomic environment sets. The raw data paints a rather grim picture. In the past year, out of the businesses surveyed, 40% grappled with limited or inconsistent cash flow. Moreover, nearly 30% confessed to having no cash set aside for unforeseen challenges.

These financial tribulations, however, have repercussions that transcend mere numbers. A whopping 45% of these entrepreneurs have forsaken their own salaries, while 43% have had to forego potential business opportunities. Behind these statistics lies the human side of the narrative. The strain of managing finances in these uncertain times takes a toll on personal well-being. For 58% of the participants, cash flow issues have led to heightened stress (84%), anxiety (79%), and insomnia (64%). These entrepreneurs also reported missing out on quality time with loved ones (42%), deteriorating diets (33%), and decreased physical activity (31%).

Inflation, accompanied by rising interest rates, has directly contributed to these financial constraints. Increased costs of essentials like raw materials, labor, and energy are coupled with the diminishing purchasing power of the average consumer, leading to a perilous cash flow situation for many small businesses.

In response to these challenges, businesses are devising a myriad of strategies. Topping the list is the trend of hiking prices, a measure undertaken by 48% of businesses surveyed. Of these, nearly a third reported an increase ranging from 9% to 12%. On the other hand, some businesses are looking inward to identify cost-cutting measures, with 43% reducing overheads and 34% slashing marketing budgets.

But there’s a silver lining, a ray of hope. Digital solutions are emerging as an ally for small businesses. Xero’s report finds that 70% of small business leaders are resorting to digital tools for cash flow oversight. However, there’s still room for growth. An astounding 55% haven’t yet integrated accounting software for payment tracking, and 56% are yet to establish invoice payment services. When it comes to forecasting cash flow for the long term, a mere 11% utilize dedicated tools.

Ben Richmond, US Country Manager at Xero, emphasized the vital role digital tools play, “Digital technology plays a crucial role in daily cash flow management by helping businesses monitor cash coming in and out, and it can provide a snapshot on how the business is performing. Additionally, we know that customers who accept digital payments on Xero online invoices get paid up to twice as fast as those who don’t use online invoice payments. Getting these types of digital technologies in place can make a big difference to a business’ survival in tough times.”

The economic landscape may be challenging, but with the correct tools and strategies, small businesses can navigate their way.

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