Growth, Vitality, and Cash Flows: High-Frequency Evidence from 1 Million Small Businesses

48 Pages Posted: 15 Aug 2018

See all articles by Diana Farrell

Diana Farrell

JP Morgan Chase & Co. - JP Morgan Chase Institute

Chris Wheat

JP Morgan Chase & Co. - JP Morgan Chase Institute

Chi Mac

JP Morgan Chase & Co. - JP Morgan Chase Institute

Date Written: July 26, 2018

Abstract

This report introduces a newly augmented small business data asset to empirically address questions of small business growth, vitality, and economic contribution. We built a sample of 1.3 million de-identified small businesses with Chase Business Banking accounts active between October 2012 and February 2018. The over 3.1 billion transactions we analyze from these businesses provide a novel view of daily revenues, expenses, and financing cash flows for individual small businesses. We use this data asset to develop a revised segmentation of the small business sector and empirically characterize three distinct dimensions of cash flow regularity: the frequency of the cash flows, the consistency of the timing, and the volatility of cash flow amounts. Using clustering techniques, we identified seven types of cash flow management problems that small businesses face. We found that firms that grow organically with limited use of external financing generate the majority of small business revenue and payroll but also are the most likely to exit the market. Moreover, nonemployer small businesses are five times more likely to exit the market than to hire employees. Additionally, entrepreneurship and dynamic growth are not limited to specific pockets of the country. Across the 25 cities we tracked, all had a large share of small businesses that grew organically. We also found that new firms that grow organically are more likely to have irregular cash flows related to timing, while those growing with external financing often have sporadic revenues. These findings provide a nuanced lens into how different firm types contribute to the economy and the importance of cash flow management to small business success.

Keywords: Small Business

Suggested Citation

Farrell, Diana and Wheat, Chris and Mac, Chi, Growth, Vitality, and Cash Flows: High-Frequency Evidence from 1 Million Small Businesses (July 26, 2018). Available at SSRN: https://ssrn.com/abstract=3223715 or http://dx.doi.org/10.2139/ssrn.3223715

Diana Farrell

JP Morgan Chase & Co. - JP Morgan Chase Institute ( email )

New York, NY
United States

Chris Wheat (Contact Author)

JP Morgan Chase & Co. - JP Morgan Chase Institute ( email )

New York, NY
United States

Chi Mac

JP Morgan Chase & Co. - JP Morgan Chase Institute

New York, NY
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
25
Abstract Views
173
PlumX Metrics