Facing Uncertainty: Small Business Cash Flow Patterns in 25 U.S. Cities

32 Pages Posted: 13 Sep 2019

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

Carlos Grandet

JPMorgan Chase Institute

Date Written: August 13, 2019

Abstract

Observers of the small business sector have argued that cash flow management is an important issue for small businesses and their owners, but existing data sources provide a limited empirical view of the cash flow patterns of individual small firms. We use de-identified transaction data from the deposit accounts of small firms located in 25 U.S. cities to identify seven distinct cash flow patterns, four of which correspond to relatively regular cash flows, and three of which correspond to irregular cash flows. We show that small firms with regular cash flow patterns are more likely to survive and experience revenue growth. Among firms with irregular cash flow patterns, we show that firms with erratically timed revenues and expenses are most prevalent and least likely to survive, but firms with sporadic revenues experienced the greatest revenue declines. We also show that firms with limited cash buffers and irregular cash flows were the most likely to exit. Finally, we provide initial evidence that cash flow outcomes may vary meaningfully within cities, perhaps more so than between cities. Our findings suggest that policymakers might usefully target programs based on the specific kinds of cash flow challenges individual small businesses face, and that opportunities may exist to target programs to the specific communities where these challenges are most prevalent.

Keywords: small business, entrepreneurship, cash flows

JEL Classification: E32, M13, L26

Suggested Citation

Farrell, Diana and Wheat, Chris and Grandet, Carlos, Facing Uncertainty: Small Business Cash Flow Patterns in 25 U.S. Cities (August 13, 2019). Available at SSRN: https://ssrn.com/abstract=3448575 or http://dx.doi.org/10.2139/ssrn.3448575

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

Carlos Grandet

JPMorgan Chase Institute ( email )

601 Pennsylvania Avenue NW
Washington, DC 20004
United States

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