One of the biggest challenges small businesses face is shoring up their cash reserves. And the February 2021 Alignable: Road to Recovery Report, highlights this very issue. According to the report, 32% of small businesses only have a month or less in cash reserves. Even more distressing, more than 15% don’t have any cash reserves at all. And the numbers are worse for minority and women-owned businesses.
The data for the Cash Crisis portion of the February 2021 report comes from a survey of 3,316 small business owners. Alignable asked these owners to share the amount of cash they currently had on hand and how long they believed it would last.
Alignable Report: Small Business Cash Reserves During COVID
The fact that 32% of businesses have a month or less of cash reserve and 15% have none at all is cause for concern. This is because cash reserves solve many problems for small businesses. So, the higher numbers for minority owners is a bigger challenge.
When it comes to minority-owned businesses almost half or 47% of them have a month or less cash reserves. But almost a quarter or 22% say they are running with no cash on hand. For women entrepreneurs, the number is slightly better at 39% with 19% operating with no cash reserves at all.
When it comes to industry segments, retailers (consumer goods) are dealing with the biggest cash crunch. Restaurants (food & beverage), creative categories (designers, entertainers, and artists), and gym owners and others in the sports and fitness industries follow.
Why You Need Cash Reserves
Cash reserves is the money a business keeps on hand to meet its short-term and emergency funding needs. Without these reserves, any unforeseen emergency will require getting a loan, liquidating assets, or even temporary closing the business in worst-case scenarios.
Finding a good balance of cash reserves will allow you to better handle emergencies, make purchases, or cover unexpected payments. The key is to not have too much cash, because you can always make better use of the money. Especially when interest rates are at zero percent.
The Alignable: Road to Recovery Report is the result of the research carried out by the Alignable Research Center. The center was established in March 2020 to track and report the impact of the Coronavirus on small businesses. Additionally, the report monitors recovery efforts, informing the media, policymakers, and its members.
Make sure to catch the rest of this timely report.
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This article, “32% of Small Businesses Have a Month or Less in Cash Reserves” was first published on Small Business Trends