By Amoury Hill
Cash liquidity is a critical predictor of small business survival and growth. Cash balances held by a business provide a buffer to absorb unexpected shortfalls in revenues or increases in expenses. While access to credit or other resources can provide some protection, most small businesses have limited access to financing. As a result, cash liquidity is often the first line of defense for a small business.
JPMorgan Chase Institute research shows that 50% of small businesses are operating with fewer than 15 cash buffer days — the number of days of typical outflows a business could pay out of its cash balance in the event of a disruption to inflows. Moreover, only 40% of firms have more than three weeks cash buffer.
Small business cash buffers vary substantially across local economies. The 18 cash buffer days held in reserve by the median small business in San Francisco, San Jose and Seattle is over 60% higher than the 11 cash buffer days held in reserve by the median business in Atlanta and Orlando. Differences in industry mix and the costs of doing business across metro areas do not fully explain the variation in cash buffers.
Our data asset leverages a universe of 1.4 million small operating businesses that use Chase Business Banking deposit accounts and allows us to estimate cash buffers by metropolitan area.
| Metro Area |
Median Cash Buffer Days | Share with < 14 Cash Buffer Days | Share with > 21 Cash Buffer Days |
|---|---|---|---|
| San Francisco |
18 |
40% |
43% |
| San Jose |
18 | 39% | 44% |
| Seattle | 18 | 40% | 43% |
| Portland | 18 | 42% | 40% |
| Austin | 16 | 43% | 40% |
| Chicago |
16 | 44% | 40% |
| New York |
16 | 44% | 39% |
| Columbus | 15 | 45% | 38% |
| Denver | 15 | 45% | 37% |
| Houston | 15 | 46% | 37% |
| Indianapolis |
15 | 46% | 37% |
| Los Angeles | 15 | 45% | 38% |
| San Diego |
15 | 45% | 38% |
| Dallas | 14 | 46% | 37% |
| Detroit | 14 | 47% | 37% |
| Las Vegas | 14 | 48% | 36% |
| New Orleans | 14 | 47% | 36% |
| Phoenix |
14 | 47% | 37% |
| Sacramento | 14 | 48% | 35% |
| Miami | 12 | 52% | 32% |
| Riverside | 12 | 53% | 31% |
| San Antonio | 12 | 51% | 32% |
| Tampa | 12 | 52% | 30% |
| Atlanta | 11 | 54% | 28% |
| Orlando | 11 | 52% | 30% |
The wide variation in the liquidity of small businesses across metro areas highlights the potential for place-based policies that support the liquidity needs of small businesses. Additionally, policymakers and advocates could support the small business sector by increasing their focus on helping small business owners manage liquidity and improve their financial resilience. Cash flow management is challenging for small businesses even in a regularly functioning economy. In those conditions, a combination of increased access to credit and trusted guidance to help owners better manage their cash flows can be critically important in helping small businesses build and maintain larger cash buffers. In the face of a large and fast-moving economic shock, policies that quickly provide cash liquidity may be most responsive to the limited cash liquidity many small businesses face.
Amoury Hill is Area Manager, Southwest Ohio, at JPMorgan Chase. Reach Amoury at amoury.hollins@chase.com or 513-985-5132.
JPMorgan Chase is a Goering Center corporate partner, and the Goering Center is sharing this content as part of its monthly newsletter, which features corporate partner articles.
Featured image at top: Photo/Pedro Lastra/Unsplash
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