JPMorgan Chase Institute Unveils New Data on the Financial Health of U.S. Small Businesses
September 21 2016 - 6:00AM
Business Wire
Median Small Businesses Can Stay Afloat For
Only 27 Days with the Help of Cash Reserves
Today, the JPMorgan Chase Institute released
new research that explores the financial health of U.S. small
businesses and reveals the cash flow challenges they face on a
monthly basis. “Cash is King: Flows, Balances, and Buffer Days”
reports that the median small business maintains enough cash to
withstand 27 days without cash inflows to their business.
This study leverages a new JPMorgan Chase
Institute small business data asset that is constructed from over
470 million anonymized and aggregated transactions conducted by
597,000 small businesses from February to October 2015.
“It is well known that small businesses are a
critical driver of economic growth, but the consistency of their
growth is in question if they’re living month-to-month. Before
today, we had an incomplete view of the health of the small
business sector,” said Diana Farrell, President and CEO of the
JPMorgan Chase Institute. “Our data provides a new and more
complete picture of small businesses and helps advocates develop
policies to support their long-term growth.”
Using a new data asset, this report also
explores key industry characteristics that help explain the drivers
of cash buffers and offers new publicly available data that help
provide a comprehensive view of the small business sector.
Key Findings: Cash is King: Flows, Balances
and Buffer Days
Finding One: The median small business has
average daily cash outflows of $374 and average daily cash inflows
of $381, with wide variation across and within industries.
- Average daily cash outflows and inflows
vary substantially across small businesses.
- Individual small business average daily
inflows and outflows are highly correlated, meaning that as cash
comes into a business, roughly the same amount of cash is paid out
by a business.
Finding Two: The median small business holds
an average daily cash balance of $12,100, with wide variation
across and within industries.
- At the lower extreme, small businesses
in the Personal Services industry had a median average daily
balance of $5,300.
- In contrast, the High-Tech
Manufacturing industry had a median average daily balance of
$34,200.
Finding Three: The median small business
holds 27 cash buffer days in reserve.
- Small restaurants hold the fewest cash
buffer days on average (16 days), while small businesses in the
real estate industry hold the most (47 days).
- Moreover, 25 percent of small
businesses seem especially vulnerable, in that they hold a reserve
of 13 cash buffer days or fewer.
- In contrast, the top 25 percent of
businesses appear substantially more resilient, in that they hold a
reserve of 62 cash buffer days or more.
Finding Four: Small businesses in
labor-intensive or low-wage industries hold fewer cash buffer days
than those in capital-intensive or high-wage industries.
- The median business in a
labor-intensive industry like Personal Services or Repair &
Maintenance carries 23 cash buffer days, while the median business
in a capital-intensive industry like High-Tech Manufacturing or
Real Estate carries 38 cash buffer days.
- The median small business in a
lower-wage industry like Restaurants or Retail holds 19 cash buffer
days, while the median small business in a higher-wage industry
like Professional Services or High-Tech Services holds 31 cash
buffer days.
Finding Five: Small business cash buffer
days vary across metropolitan areas, but no clear pattern emerges
from this variance.
- Average cash buffer days in the 24
selected cities vary from 21 days in Orlando to 34 days in San
Jose, a spread of 60%.
- Differences in industry mix and
population between metropolitan areas do not explain this
variation.
“A small businesses cash buffer can serve as a
benchmark for the vitality of the U.S. small business community. We
hope it will spark new policy ideas and conversations about how
these businesses can better manage their liquidity, increase access
to credit, diversify their offerings and improve their financial
resilience,” added Farrell.
Read more about the financial health of U.S.
small businesses here:
https://www.jpmorganchase.com/corporate/institute/report-cash-flows-balances-and-buffer-days.htm
About the JPMorgan Chase Institute
The JPMorgan Chase Institute is a global think
tank dedicated to delivering data-rich analyses and expert insights
for the public good. Its aim is to help decision makers –
policymakers, businesses, and nonprofit leaders – appreciate the
scale, granularity, diversity, and interconnectedness of the global
economic system and use better facts, timely data and thoughtful
analysis to make smarter decisions to advance global prosperity.
Drawing on JPMorgan Chase & Co.’s unique proprietary data,
expertise, and market access, the Institute develops analyses and
insights on the inner workings of the global economy, frames
critical problems, and convenes stakeholders and leading thinkers.
For more information visit: jpmorganchaseinstitute.com.
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Media:JPMorgan Chase & Co.Nicole Kennedy,
215-864-5732nicole.kennedy@chase.com
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