Q1 Small business cash flow trends: small businesses optimistic despite rising expenses and inflation

Small businesses face myriad challenges, from inflation to hiring and retaining qualified staff. In understanding how these challenges affect small businesses, cash flow data can provide valuable context on their overall financial health.

In a new quarterly report in partnership with OnDeck Capital, the leading small business lending company at Enova, we used this data, often used by lenders to make more informed financial decisions, to take a first-of-its-kind look at the overall health and sentiment of small businesses across the United States.

By combining survey results with cash flow data, the report offers a deeper look at how small businesses are faring in today’s unpredictable economic climate – and reveals a spirit of optimism about what lies ahead in 2024.

Inflation and cash flow: Rising challenges for SMBs

Small business owners feel more pressure to cover their expenses as business costs rise. Of those surveyed, 83% of small businesses said inflation was their top concern. 

Moreover,  71% said they were concerned they wouldn’t have enough cash flow to cover expenses – and 70% said they have less than four months of cash available to cover operating costs.  

Understanding how inflation translates to small business operations is key. According to Ocrolus data, small business revenues have been substantial and generally increasing nationwide over the past 18 months. However, expenses also increased in 2023, with December median monthly expense 2.5% higher than the same period in 2022.

Ocrolus cash flow data also shows that the total revenue spent on payroll has increased over the last 18 months. Driven by a strong labor market and continued inflationary pressure, payroll outflow rose above 20% of revenue for the previous two months of 2023.

Small businesses’ revenue-to-expenses ratio hovering near 1:1 helps illustrate their increasingly narrow profit margins – and highlights the critical need for capital to bridge current expenses to future revenue.

Small business sentiment in 2024 

Despite small businesses’ inflation concerns, 92% of surveyed small business owners say they expect moderate or significant growth in the next year. Supporting this outlook, small business loan application data showed a 25% growth in median revenue over the past 18 months.

This revenue growth trend reflects the resilience and adaptability of small businesses in navigating economic challenges and underscores their potential for expansion and success despite inflationary pressures.

Over the same period, Ocrolus cash flow data shows increased revenue matched the average increased daily balance in small business applicants’ checking accounts, indicating small businesses are aligning their resources with their optimism.

How cash flow data reveals trends in small business health

In today’s increasingly challenging market, a small business’s ability to innovate, adapt and explore new opportunities becomes even more relevant. Lenders who appreciate these dynamics can make more informed decisions, supporting businesses surviving and potentially thriving in challenging conditions.

The insights gleaned from this report underscore the importance of understanding the nuanced challenges small businesses face, from managing inflation and cash flow to navigating the complexities of growth in a fluctuating economy – as well as the critical role of lenders in recognizing and supporting the potential of businesses.

With data from hundreds of thousands of small businesses each month, Ocrolus can generate detailed cash flow trends from small businesses nationwide. This data includes revenue and expenses, transaction categories, ratios, and more, offering lenders a complete picture of a business’s financial health.

Cash flow data has emerged as a pivotal tool, providing deeper insights into a business’s financial stability and ability to navigate economic fluctuations.

By leveraging detailed and accurate cash flow data, small business lenders can make informed decisions, identify trends and implement strategies that enhance efficiency and contribute to overall small business success.

Book your demo to discover how Ocrolus enables small business lenders to build a deeper understanding of their customers and predict the risk of default with cash flow analytics.

Key takeaways

• Small businesses remain optimistic about growth despite concerns over inflation and increasing operational costs, with 92% expecting moderate to significant growth in the next year.
• Cash flow data is critical for lenders to accurately assess the financial health of small businesses, enabling more informed lending decisions amidst economic pressures.
• Leveraging cash flow analytics helps lenders understand small businesses’ resilience and potential for growth, supporting informed decision-making and identifying emerging trends.