Cash is King: Flows, Balances, and Buffer Days Evidence from 600,000 Small Businesses

Abstract

In Cash is King: Flows, Balances, and Buffer Days, we explore the financial lives of small business through the lens of cash inflows, outflows and account balances. Using a new data asset constructed from over 470 million transactions conducted by 597,000 small businesses from February to October 2015, our analysis shows that half of all small businesses hold a cash buffer large enough to support 27 days of their typical outflows. Our findings are fivefold. First, the median small business has average daily cash outflows of $374 and average daily cash inflows of $381, with wide variation across and within industries. Second, the median small business holds an average daily cash balance of $12,100, with wide variation across and within industries. Third, the median small business holds 27 cash buffer days in reserve. Fourth, small businesses in labor-intensive or low-wage industries hold fewer cash buffer days than those in capital-intensive or high-wage industries. Fifth, small business cash buffer days vary across metropolitan areas, but no clear pattern emerges from this variance. We hope this report draws attention to cash balances as an important issue, helps people better understand differences among small businesses, and helps in the development of smarter programs, products, and policies that enable small businesses to flourish.