For many small and midsized businesses, how well they’re doing is measured by cash flow. Using that yardstick, a second-quarter survey of owners points to generally healthy companies.
The survey, released July 2 by researchers at Pepperdine University’s Graziadio School of Business and Management and Dun & Bradstreet Corp., shows that only 30 percent of companies tried to raise outside financing during the previous three months. And of those businesses that didn’t seek financing, 54 percent didn’t want it because their cash flow is strong enough.
The trend looks to continue for the rest of 2018, as just 29 percent said they were planning to seek financing during the next six months, and 69 percent of those not expecting to do so said their cash flow is strong enough.
Among those planning to raise financing, 57 percent said they wanted to fund growth or expansion. And two-thirds expect to seek business loans from banks.
Cash flow matters to a business because it funds day-to-day operations and, if it’s strong enough, can be used toward hiring and expansion. If a company does seek financing, lenders and investors want to see solid cash flow figures before they’ll commit funds.
The strong economy appears to be helping small businesses; economists are predicting that the gross domestic product will have grown by 4 percent from April to June. Some companies may also be benefiting from the tax law enacted in December.
The survey, conducted in April, questioned 1,313 companies with up to $100 million in annual revenue. The companies were among those in database of Dun & Bradstreet, which compiles credit reports on businesses.
Although most companies appear satisfied with their cash flow, their revenue outlook dimmed during the second quarter. Companies expect revenue to rise an average of 6.2 percent, but that’s down from their 10.5 percent forecast during the first quarter.
An index measuring small and midsized businesses’ access to financing fell 4.5 percent, to 33.2 from 34.8 in the first quarter.