So in trying to decide what to write about today, I decided I’d ask AI what the number one concern small business owners are facing now and tackle that.
I had a hunch what the answer was going to be, and it turned out I was right: cash flow.
This is the AI response (edited for length and a lot more detail than I asked for):
The #1 Struggle of US Small Business Owners: Cash Flow Management
Based on current research and surveys, the number one thing small business owners worry about and spend the most time dealing with is cash flow – specifically, having enough money on hand to cover expenses, pay themselves, and keep the business running day-to-day.
Seventy percent of small businesses hold less than four months’ worth of cash reserves, leaving them vulnerable to operational disruptions, and 45% of U.S. small business owners forego their own paychecks due to cash flow shortages, while 22% struggle to cover basic bills.
The data paints a troubling picture: 60% of SMBs cite ineffective cash flow management as a major challenge, and 91% of business owners and managers have cash flow issues.
The Core Question Keeping Them Awake
“Will I have enough money to make payroll, pay my bills, and keep the doors open next month?”
This isn’t a question about long-term strategy or growth – it’s about immediate survival. And it’s relentless. 95% of small business owners make financial decisions based on their bank balance alone, checking it daily with anxiety.
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Why Cash Flow Trumps Everything Else
While surveys show multiple concerns competing for attention, cash flow sits at the intersection of ALL other problems:
1. Inflation (Often Cited as #1 Concern)
About 24 percent of survey participants said that inflation was the most important problem for their business, but inflation is really a cash flow problem in disguise. Rising costs squeeze margins, forcing business owners to figure out how to bridge the gap between what they’re spending and what they’re earning.
2. Labor/Staffing Issues (Often #2 Concern)
About 21 percent of respondents stated that the most important problem for small businesses was the quality of labor. But hiring and retaining employees requires reliable cash flow for competitive wages and benefits.
3. Finding Customers (Revenue Generation)
Brings us back to cash flow – you need customers to generate the cash to operate.
Why Other “Top Concerns” Are Really Cash Flow Issues
Inflation? Makes expenses unpredictable, disrupting cash flow planning.
Rising interest rates? Makes borrowing more expensive when you need to bridge cash shortfalls.
Finding customers? You need revenue to improve your cash position.
Hiring challenges? Can’t afford competitive wages without solid cash flow.
Access to capital? Only needed because cash flow is insufficient.
Supply chain issues? Requires cash reserves to buy inventory earlier or from more expensive sources.
The question they want answered most is:
“How do I get out of this cash flow crisis so I can actually build the business I envisioned instead of constantly scrambling to cover this month’s bills?”
My answer to the question is really in three parts because why your business may be having cash flow issues and how you can fix it depends on which bucket you fall into. Not all cash flow challenges are created the same, and not all are fixed the same way.
Problem One- You Haven’t Gotten Your Pricing Right
Fortunately, this is the easiest one to fix. This is a business owner who just isn’t good at looking at their numbers and understanding their true costs. So, they price low and get jobs, but don’t end up making enough.
Most business owners figure this out over time and start to get better at pricing and cost management, and build in enough margin to get on track. But this should be something you have a handle on from day one and keep a close eye on all the time.
If you have enough work and customers like you and want to buy from you or work with you, then work on raising prices and making sure you are very careful with your spending, and you can expand your margin to healthier levels.
Problem Two- You Have a Value-Added Problem
The difference you get paid between the price you buy for and the price you sell for exists because you are adding value in some way. For example, you buy a bunch of wood, and you sell a beautiful set of cabinets. Your skill, labor, and time added value to that wood to create something a customer is willing to pay you for in excess of what you spent to make it- that’s your profit for the effort.
A lot of people in business don’t understand that concept and get surprised when the market doesn’t want to pay them any extra if they haven’t added any value. Simply buying a product from a supplier in one place and listing it for sale in another place doesn’t in itself add much value- often not enough to sustain a business, and particularly if other sellers are selling the same product and can do so for even less. If your business is scraping by with virtually no profit, ask yourself what value you are bringing to the process and if that value is seen and appreciated by your customers.
If the answer is no- they will only buy from you if you offer the lowest price and are gone the second you cost more than another seller of the same thing, then they are sending a clear message.
If this is you, what can you do? First, recognize the problem! Second, figure out how you can differentiate yourself in a way that offers value to the customer they are willing to pay for and allows you to have a spread between your cost and your sale price. That may mean bundling or curating or creating unique designs or adding unique features or adding a content component or otherwise offering something they can’t immediately get an exact copy of from someone else. If you can’t think of any way to do that at all, it may be time to move on!
Problem Three- You Have a Fixed Cost vs Demand Problem
In this case, imagine you own a restaurant and sell sandwiches. You’ve done the math and know that selling a sandwich for $10, after figuring in labor and food cost, nets you a $4 profit per sandwich. A 40% profit margin is terrific. The only problem here is that 40% isn’t a profit margin; it’s a contribution margin.
Which is to say, you can make $10 sandwiches for $6 in cost only because you’re spending $40,000 a month on a location with all the equipment, staff, and supporting infrastructure to allow you to do it. Or put another way, you have to sell 6,700 sandwiches at $10 each to make enough money to cover the $40,000 monthly cost of rent, insurance, utilities, marketing, payroll, and food costs so that you can then start making a profit.
In this case, it’s not that your price is off or that you aren’t adding value, but if you don’t have enough demand to warrant at least 225 sandwiches a day, you aren’t going to make any money.
The challenge with this kind of business is that it’s hard to scale- you can’t open a restaurant that only costs $500 a month so you only have to sell a few sandwiches a day to be profitable. You have to go in big enough that you can even open the doors, and then hope you get enough business to cover all the fixed costs every month.
Any business that requires leasing space is going to face this challenge- restaurants, auto repair, dentists, clothing stores, etc. Landlords want you to commit to a multiyear lease, and you don’t want to get the smallest, crappiest space you can find with no parking and no visibility if you want to succeed. Then you have to fill the building with equipment, signs, etc., and get permits, insurance, and so on, and then attract people to the location with your offering.
All that costs a lot of money, and if you don’t attract enough customers, even if you are getting quite a few (6700 sandwiches a month is a ton to just break even!), the business can go under. These kinds of businesses are also the hardest to fix- you need to be able to forecast the demand before you start, and then keep it going with great service and marketing, and not let up the pace. There are no easy fixes if it’s not working, unfortunately.
So, I agree with AI that this is a big question, and a lot of owners struggle with this problem. In order to fix your issue, first understand what the underlying cause of your cash flow struggle is.
Then determine how you fix it or if you can fix it. The sooner you can do that, the sooner you can either get on track or else bail out and start again with something that won’t put you in the same position again, because you’ll know ahead of time what to watch out for!