82% of Business Failure is Due to Poor Cash Management (INFOGRAPHIC)

Small Business Funding Statistics

The first year of operation for small businesses is full of challenges. And when it comes to capital, most of them rely on personal savings and income from another job.

The data comes from SCORE’s second part of a three-part series titled Megaphone of Main Street. In the first part, which is titled Finding Your Way, Finding Customers, SCORE looked at starting a business and finding customers.

So, it makes sense the second part is addressing the challenges of financing. Why, because of the lack of capital or running out cash is the second most common reason for business startups to fail. According to SCORE and a U.S. bank study, 82% of business failure is because of poor cash management.

The biggest concern for businesses, according to SCORE, is securing adequate cash flow to maintain their operations.

Small Business Funding Statistics

The Megaphone of Main Street report takes a look at the current American small business landscape with a snapshot of the different issues they face. The data comes from a survey of 1,000 startup small business owners across the nation. Both qualitative and quantitative data are directly from a diverse group of startup entrepreneurs.

How are Businesses Financing their Operations?

Entrepreneurs are relying on personal income and savings to fund their business. The survey asks, how much cash did you have in startup funds before starting your business?

Less than a quarter or 24% started with more than $50,000, but almost half or 49% started with more than $10,000. However, a considerable number of entrepreneurs (42%) had less than $5,000 in cash reserves. With less than $,5,000, it quickly becomes obvious there is little room to maneuver if everything doesn’t go according to plan.

A further breakdown of the funding reveals 66.3% of it comes from personal finance and 27.6% is income from another job. The rest come from friends/family (11.3%), bank loan (11.2%), cash advance from credit cards (9.0%), donations from family/friends (6.4%), investors (3.4%) grants (2.1%), and crowdfunding (1.7%).

Considering they don’t have the necessary funding, how are new entrepreneurs getting the money they need? Surprisingly, 78% in this survey say they did not seek outside financing. Of those who did, which is a mere 22% they did so from different sources.

The majority or 8.2% went to banks or other financial institutions, followed by loans from friends and family at 4.8%. The rest of the financing comes from SBA (3.1%), online lenders (2.3%), angel investor (1.4%), and crowdfunding (0.8%).

When they do get the financing, it is not much, because only 10% of all entrepreneurs received startup funds of more than $25,000.

How are the Funds Used?

Small businesses cover almost every industry, so their needs are going to vary accordingly. The funds they receive can be used for one or more things, which is what the survey points out.

In this case purchasing equipment (63%) and inventory (48%) along with marketing (48%) are the top three spends. Some of the other ways the funds were used include leasing and preparing business location (41%), product development (27%), and hiring staff (26%).

Take a look at the SCORE infographic below for all the small business funding statistics.

Small Business Funding Statistics

image: SCORE
Image: Depositphotos.com

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Michael Guta Michael Guta is the Assistant Editor at Small Business Trends and has been with the team for 9 years. He currently manages its East African editorial team. Michael brings with him many years of content experience in the digital ecosystem covering a wide range of industries. He holds a B.S. in Information Communication Technology, with an emphasis in Technology Management.