
Cash Is King: Flows, Balances, and Buffer Days - wslh
https://institute.jpmorganchase.com/institute/research/small-business/report-cash-flows-balances-and-buffer-days.htm
======
lukas099
> The median small business has average daily cash outflows of $374 and
> average daily cash inflows of $381

Someone help me understand. Does this mean that small businesses make $7/day
or $2555/year on average?

~~~
stevedewald
Yes, after paying salaries, owner distributions, etc. There isn’t much
incentive for small businesses in the US to keep excess cash in the company.

~~~
HenryBemis
Silly question but I think a valid one. Do small businesses include
contractors? In the UK contractors are required to form a Ltd, thus all
incoming is also outgoing (tax, VAT, salary, dividend, expenses)

If that is the case, the $7 make sense. I only leave a small capital in my
company £5-7k for expenses/surprises by HMRC (aka IRS).

~~~
lol768
>In the UK contractors are required to form a Ltd, thus all incoming is also
outgoing (tax, VAT, salary, dividend, expenses)

I don't think they're required to do this.. certainly it's possible to work
via a brolly. Public sector clients have started asking some contractors to do
this post-IR35.

Whilst I know agencies have their own policies on this, do you know of any
legal reason why companies wouldn't be able to work with contractors who are
self-employed for tax purposes (/instead/ of operating via a Ltd company)?

Obviously in most circumstances it's a really dumb idea to operate as self-
employed instead of via a Ltd company.

~~~
HenryBemis
I've been contracting in the UK for "a while". The last couple of years the
gov was pushing the IR35 agenda to increase HMRC revenue, making contractors
"super expensive employees without benefits". This year majority of the calls
I got were within IR35 (no more Ltd) or Umbrella.

Up until 2019 vast majority of calls/contracts offered to me (in the IT
Audit/Risk/Security, GRC areas) were Ltd. I guess large Financial Services
companies enjoy the 2mil liability insurance. Because if little-me messes up,
their will get jack-shit :) It was also making the "contracting for a project
and not an employee" scenario.

------
eruci
I've gotten several inquiries (more than in the past 10 years) on LinkedIN
recently from 'investors' offering financing for companies 'in trouble'. I run
a very small company that is completely bootstrapped and I have never used any
outside funding for anything I've done. Yet, they found me.

The sharks are circling, they smell blood.

~~~
avalys
Every small business owner in the US should check out the details of the CARES
Act (the coronavirus rescue package, just signed into law).

Essentially, the US government will cover your payroll, rent, and a few other
things for the next 2 months, up to $10M.

This is implemented as a “loan”, so that it can be rapidly issued from
existing commercial banks - but the principal will be forgiven once you
provide documentation that it was spent on covered expenses. You don’t have to
pay it back.

It’s not perfect, but it might be just enough to bridge the gap for many
businesses until things start returning to normal. Hopefully, Congress will
extend it if necessary.

~~~
ac29
Do you have a link for this? The stuff on sba.gov doesn't mention the
forgiveness portions of these loans anywhere I can find, so the only info I've
seen is summaries provided by news media.

There are various covid-19 related programs on sba.gov, but none of them seem
to exactly match how the news has described them, and I think one could easily
apply for the wrong type of loan assuming it would be forgiven and end up on
the hook for the full amount.

~~~
avalys
Here is a link to a description from my CPA (I know their site looks like
shit, but they are legit).

[https://wcginc.com/blog/paycheck-protection-
program/](https://wcginc.com/blog/paycheck-protection-program/)

It is called the “Paycheck Protection Program.”

------
unreal37
The thing to note is, if cash inflows stop, some cash outflows also stop.

Like if you're a store and you're not selling any products right now, you're
also not buying any inventory. If you're a restaurant that's closed, you're
not buying any food.

Revenue has to include cost of goods sold right, unless specifically excluded?

~~~
jeromegv
Some yes. But when rent is one of your biggest one, the impact of stopping is
quite high as you can't even cover this one.

~~~
lotsofpulp
Rent/mortgage/insurances/property tax are the big ones.

------
xchaotic
Assuming one made the right choices and is 100% cash, what now? Do you buy the
dub on equities? In my view cash is also getting diluted by gov action, which
can be nicely summed up by the meme money printer go brrrrr

~~~
kortilla
> In my view

Don’t use your view. The massive economic contraction is a deflationary
pressure. Keep an eye on commodity prices before worrying about inflation.

~~~
0x8BADF00D
You need only look at foreign currencies and the price of precious metals. The
dollar is weakening. That means inflation or even hyperinflation if the dollar
price index slips below 90.

~~~
wolco
Dollar is weakening? Against what currency, I've been watching a jump to US
currency.

------
wallacoloo
> We constructed a sample of 597,000 businesses who hold Chase Business
> Banking deposit accounts and meet our criteria for small, core metropolitan
> operating businesses.

I read the overview — not the full 44pg pdf. But if small businesses manage
their finances at all similarly to the way I as an individual do, I wouldn’t
expect a single bank deposit account to hold the full story of all the
liquidity a business can tap into in time of need.

For example, how many of theses businesses keep enough $ in the bank account
to cover monthly expenses, and then keep some in a higher grossing money
market account with a different institution which they can tap into in times
of unexpected/less frequent demand, or as they save up a deposit on a nicer
office, or as a way to optimize their take-home pay for tax purposes? I don’t
know the answers, but from the overview it seems like Chase doesn’t either.

------
symplee
Is there an equivalent "short term disability" insurance for companies? Where
if some unforeseen event happens, they can still make 60-80 percent of their
revenue for 6-12 weeks?

~~~
themagician
You can get insurance on your receivables, which is the real immediate risk.
Lost revenue is one thing, but right now a lot of companies are refusing to
pay or changing payment terms and many will go bankrupt.

If you are owed $500k in the next 90 days from a company that’s going to
default on its debt obligations there’s a good chance your receivables will
fall apart long before revenue itself is actually a problem.

------
whatsmyusername
To anyone believing the hogwash about, “loans getting forgiven in 10 months if
you follow the rules,” go look what happened with student loan forgiveness for
public service.

Trusting anything the US government says about money that could cross a
political cycle is just stupid.

------
tmpynews
I have never really thought about daily cash flows before, but it looks like
for SMBs the cash inflow and outflow is the same on a daily basis. How do the
owners make money?

~~~
bagels
The average small business doesn't, it fails after a few years, even in the
best of times.

[https://www.sba.gov/sites/default/files/advocacy/Frequently-...](https://www.sba.gov/sites/default/files/advocacy/Frequently-
Asked-Questions-Small-Business-2018.pdf)

------
toomuchtodo
TLDR More than 50 percent of US small businesses only have roughly a month of
cash reserves on hand (based on JPMC’s data from small biz accounts).

~~~
wslh
That is a great insight. It is incredible how fragile the economic system is.
This is one of the weak points if the economic system that can destroy decades
of work.

~~~
wtvanhest
Or robust depending on your point of view. The consequences for running out of
cash are simply not that severe.

Let’s say you own a restaurant, your revenue goes to zero. You pay wages owed,
then stop. Unemployment picks up a part of the loss for employees, their
landlords feel the pain. Food goes bad, restaurant takes a loss on that. Rent
doesn’t get paid, landlord foots the bill. Utilities go to nearly zero, etc.

By the time this is all over, we will see 3 things: 1) we will learn where
safety nets did and didn’t work

2) landlords will have to lower rent to account for periodic lost income over
the next 2 years or they will have to agree to self insure for losses during
times of shutdowns.

3) we will have insights in to which countries have functioning healthcare
systems and which don’t. Also which are efficient and not. Hopefully the globe
can improve their policies.

~~~
kgwgk
> 2) landlords will have to lower rent to account for periodic lost income
> over the next 2 years

What does than mean?

~~~
wtvanhest
Rent is determined by what businesses believe they can make in profit. If
businesses believe they will be shut down periodically because of SIP orders,
they will need a discount to today’s rent all else equal

~~~
PaulDavisThe1st
That's a little simplistic.

Rent is determined by a fairly complex interplay between what landlords
believe they could collect from some hypothetical tenants, and what tenants
believe they could afford to pay based on some hypothetical level of business.

Granted, not many tenants will choose to pay rent that exceeds what they think
they can pay, but it may certainly exceed what they are actually able to pay.

And plenty of landlords keep premises empty because they want to wait for some
other tenant who will pay them what they think they can get, rather than
accept the rate real potential tenants are prepared to pay.

~~~
UncleOxidant
Add to this mortgages on rental space. Mortgages already in place based on the
valuations of a more prosperous time. Many will be defaulted on.

------
zitterbewegung
Having a text version of the graphs in this site is really helpful. I wish
more sites would do this .

------
jtdev
Seems like maybe there are systemic issues with the economy...maybe
concentrating wealth in the hands of so few doesn’t make for a robust economy
that can handle some punches.

~~~
ttul
Let me illustrate with an example. A colleague operates a company doing about
$10M in annual revenue. Due to stay at home orders, his business has
completely failed. A very wealthy minority shareholder who lent the company
some funding last year is now going to do a debtor-in-possession financing and
will end up owning the whole thing. The founder, who is not wealthy, will lose
everything. The rich man will gain everything.

Once the pandemic is over, the company will return to normal. The rich just
got richer, folks.

~~~
tucaz
It seems like you are trying to portray the lenders as the bad guys here. If
that’s the case there is one thing I don’t understand.

I had no money to fund my enterprise venture. Found someone that believed in
it enough to lend me money with the promise I would pay it back. I couldn’t
pay it back so they “took” my company.

How are the lenders the bad guys? What are they supposed to do?

~~~
gbear605
As a society, we want your enterprise to exist and be owned by you, an
individual, not a lending company. We need a different system that can fund
you and keep you funded as long as it’s a good business, which means even
through events like this one. I’m not sure exactly what that looks like, but
it’s not our current system.

~~~
xyzzyz
If it was easy, someone would have figured it by now, after hundreds of years
of shareholder capitalism. At the end of the day, real world business is
risky, and someone must be taking that risk. If lending companies are asked to
both front the money _and_ take the risk, there will be no lending companies
and no financing.

~~~
gbear605
In that case perhaps the solution involves no lending companies.

