Starting a small business often takes personal and financial sacrifice. As entrepreneurs take their first steps as budding business owners, their new ventures take up a lot of mental and emotional bandwidth – and cash. New data released today by Kabbage shows that many small business owners do not pay themselves for months to manage business cash flow at the onset of their ventures.
According to the online lender's findings, 51 percent of the 500 successful entrepreneurs who participated in the survey admitted that they willingly denied themselves a paycheck to benefit their business. The figure comes from a survey conducted by the company that sought to understand how a small business's starting cash flow impacts an owner's workload, personal life and take-home pay.
Approximately 26 percent said they went 2-6 months without paying themselves, while another 25 percent said they went more than six months without an income.
The physical and mental impact of cash flow
Kabbage CEO Rob Frohwein says he's "intimately familiar with cash flow challenges," given the number of small business ventures he undertook before founding Kabbage.
"Sleepless nights were my reality when waiting on customer checks and thinking through needed expenditures," he said.
According to the survey, Frohwein was not alone in losing his nightly rest. Approximately 35 percent of respondents said they "often lose sleep" or have trouble sleeping. The survey found that 63 percent said they are "regularly stressed or have anxiety" because of cash flow concerns.
Sleep deprivation can lead to major health problems. According to the Centers for Disease Control and Prevention, approximately one-third of Americans get less than the recommended amount of sleep. This puts individuals at risk for "many chronic diseases and conditions – such as type 2 diabetes, heart disease, obesity, and depression."
The social impact of cash flow
Along with the physical and mental drain on entrepreneurs, the survey considered how other aspects of small business owners' lives are affected by cash flow worries.
The survey found that 91 percent of small business owners "spend as much as 20 hours per week" on cash flow management. Of the 500 respondents, 42 percent said they sacrifice much of their social life and personal hobbies to manage their business's cash flow needs.
Kabbage asked what its respondents would do if they didn't need to worry about cash flow and found the following:
- 51 percent would invest more time in sales and marketing to drive new business.
- 35 percent would further develop their products and services, saying they have new ideas but no time to focus on them.
- 32 percent would spend more time with family, friends and community.
- 30 percent would focus more time on customer service.
- 22 percent would use the time on hiring and mentoring their employees.
- 22 percent would investigate new technologies and business systems to make their company more efficient.
"These experiences drive Kabbage's mission to help small businesses easily manage cash flow so they can focus on the skill or craft that allowed them to start their business in the first place," Frohwein said.
While respondents said they went through some tough times early on, they reported their companies have been successful for at least 10.5 years.