Cash Flow Q&A: Statistics in Small Business

Posted 16 October by Blaine Bertsch in Accounting, Bookkeeping, Cash Flow, Entrepreneur, Small Business, Videos

Blaine and Barb discuss some startling and worrying statistics that plague small businesses.

Transcription:

Barb:

Hi there everyone this is Barb Easter, Director of Partnerships with dryrun, here today with Blaine Bertsch, the CEO of dryrun. We’re going to talk about some key statistics that can really lend insight into the role of strategic advisor for bookkeepers and accountants when they are working with businesses.

Blaine, we continually come across these, they’re kind of like rumblings in the distance that all is not how it seems to be economically, both in North America and around the world. If you wouldn’t mind just enlightening us in terms of the statistics that you uncovered that we talk about, I think our users would be really interested by that.

Blaine

Yeah you find this kind of Statistics all the time they’re kind of floating around the web but I had to do a presentation to a bunch of entrepreneurs the other day and I just dug out a couple of stats that I thought would be worth using and honestly if you pop on Google you’ll find them immediately, they’re the same stats quoted everywhere, all the time.

Number 1:

A quarter of businesses will go out of business, actually fail due to a cash flow issue. That to me, that’s an epidemic. If it was in any other area of the world people would be freaking out about that. If that was killing one out of four people, you could imagine the response.

Number 2:

Out of every single business failure 82% of them are directly related directly to cash flow issues. So we’re talking, it’s basically, that’s why businesses go out of business.

Now how they get to the cash flow problem, there are a whole lot of ways to get there. But, the big issue for me is that it is literally, the number 1 thing that kills businesses by such, miles and miles. Then if you look at the interviews and the articles it’s kind of funny at the end it’s just like so grab a spreadsheet.

It’s the biggest issue a business can face and at the end of the article all they have to say is well you can try to figure it out on a spreadsheet.

That is a complete mismatch. You are talking to entrepreneurs and they are busy, they are swamped they are domaine experts, they’re not finance experts and your trying to get them to tackle probably the biggest problem they face in the most rudimentary way.

So it’s something that kind of drives me nuts. I know when I pulled those stats out there were a lot of wide eyes in that room, but they also know it. Every one of those entrepreneurs has in the back of their mind, that’s what’s keeping them up at night.

They know there are cash flow issues, they know how important this stuff is, they don’t want to face it, they don’t know how to face it, they are too busy to face it, when they aren’t taking care of it.

So it’s an issue that I think is absolutely enormous. I want to try to get through how important this issue is and why.

Businesses have to hop on the bandwagon here and get going with their cash flow, and figure out where they are headed.

Every one of them could benefit from the help of a pro that understands their business.

That is the thing too, I know I step on some toes sometimes saying this but … if you have a business and you have the wrong people helping you, if they’re the wrong bookkeeper, the wrong accountant. It is just putting you at a higher risk.

They probably have your best interest at heart but that doesn’t mean they understand your business, and it doesn’t mean that they’re helping you get setup with the right tools, the right processes to make the most of your own data that is sitting there.

All the information you need to forecast your cashflow, to understand where you are headed. It’s there, some of it’s, quite frankly, a lot of it’s in your head, a lot of it’s in different spreadsheets and software. Somehow you want to get this all hooked together. Have somebody put this data together and sometimes just open up the conversation.

Say, what’s going on? You’ve got some issues coming up in the next month or two, you’ve got a bunch of overdue stuff…at least give you the information you need to make decisions.

Barb:

You know that’s, it never fails to strike me how much of a personal monster cashflow is…

Right, so to say that you are a cashflow expert or an accountant or a bookkeeper is not employing those tools of transformation for people’s business.

To move them into like a nuanced useful, strategic direction right, and that’s why I think some of the newer tools that will help you connect all your apps, all your technology in a stack are useful.

Would you agree with that?

Blaine:

Yeah but before we even talk tech, there’s another point that I want to make.

Everybody knows that profitable companies go out of business every single day because of a cash flow issue. That is sometimes I think when we say cash flow, cash flow, cash flow and some people sit back and go. Yeah no we’re massively profitable, yeah massively profitable companies go out of business every day because they are not getting the cash flow.

They are not getting the money owed them. I know business owners often send out an invoice and it feels like you’ve got cash in you pocket. We’ve talked about that before.

It is, depending on your business model, sometimes if you are invoicing net 30 and there are chronic people paying late…

That is the biggest issue. On paper you could be profitable, highly profitable, massive amounts of revenue and still go out of business because you can’t get the cash in the door to pay your expenses.

Barb:

When you talk about one in four businesses failing do you have a timeline for that?

Blaine:

I’d have to look it up, I’m pretty sure it’s in the 1st five years. It’s quick, when businesses go out of business I’ve seen that over and over again.

Barb:

Stand up, fall down, right?

Blaine:

When businesses go out of business it’s like year one there is this massive attrition, year 2, year 3, year 4, year 5.

When you start getting past that 5 year mark, you are much more likely to make it longer term.

We’re not talking, oh you made it past the 5 year mark you’re there for fifty years, that’s not the case, you are still, every business is at risk every year.

Again, going back to to some of the financial records, it doesn’t matter what happened last year. You can glean a tiny bit of information from it but also you can be mislead by what happened last year.

Thinking, you’re still going to grow this year. Maybe you had massive growth and you are unprepared or maybe you are actually shrinking and you don’t really know it.

You are thinking well we did good last year we’re going to do good this year. It’s just not, that’s not the case.

Barb:

This is my soapbox, this is why algorithmic forecasting doesn’t work as well as situational forecasting. Back to that idea of you don’t want last year to look like this year.

The idea that cashflow is a personal monster it takes the imagination of the business owner to inform those situations.

We are almost out of time, I appreciate hearing your viewpoint on those statistics, and I’m sure that you’ll be back with more as we continue to connect the dots. To indicate that cashflow is a serious issue that plaques, like you said one in four businesses. It puts them out of business.

Blaine:

Plaques everybody, kills one in four businesses.

Barb:

Yah, it really does, it’s not a light matter at all.

Thanks for your time today.

If you have further questions that you’d like to address to us, you are welcome to chat with us, at the bottom right of your screen.

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