Q4 2023

Small Business Cash Flow Trend Report

OnDeck + Ocrolus

About the Trend Report

OnDeck and Ocrolus have partnered for the first-of-its-kind Small Business Cash Flow Trend Report. OnDeck is the leading small business lending company at Enova, and Ocrolus is a document AI and cash flow analytics platform for lenders. The report is based on two important inputs:

  1. Quarterly survey responses from nearly 500 small businesses with working capital loans from OnDeck across all regions. These businesses generally have fewer than 30 employees and less than $10M in revenues.
  2. Cash flow data from over 3 million small business applications for working capital financing during an 18-month period.

The combination of these two inputs provides unique insights into the health of small businesses, as well as the challenges and opportunities facing business owners as they operate and grow in today’s economy.

The fourth quarter's report revealed four key findings:

  1. Most small businesses are feeling optimistic about growth in 2024 and their ability to expand over the next 12 months.
  2. A steady increase in revenues supports this optimistic outlook for growth in 2024.
  3. As inflation cools, businesses are looking to improve profitability and available cash as a way to support growth.
  4. Hiring qualified staff remains a concern for over half of small businesses.

“OnDeck is focused on supporting small business growth with the working capital they need,” said Jim Granat, co-president of OnDeck, the small business lending company at Enova. “This cash flow trend report shows that businesses are poised for growth and they have a positive outlook for the future. As small business owners know — cash flow is a truth-teller of the financial health of a business.”

92%

of small businesses say they're hopeful and expect moderate or significant growth in 2024.

80%

of small business owners say inflationary pressures are still a concern, despite recent cooling.

Small businesses are feeling optimistic and anticipate growth, while managing working capital needs.

Nearly all small businesses are feeling positive about the future and expect their business will experience moderate or significant growth in the next year.

Growth expectations are generally consistent across the country, with 25% of businesses expecting significant growth over the next 12 months. In Boston, Minneapolis and St. Louis, growth expectations are more muted, averaging just 16%.

Loan application data shows 25% growth on average in median revenue over the past 18 months, supporting small businesses’ optimistic outlook.

Cash flow data found that along with increased revenue, average daily balances were increasing for small business loan applicants’ operating checking accounts, indicating businesses are aligning resources to support their optimism on growth.

Revenue

Line graph showing median revenue (Y-axis) reported by small businesses over time by months (X-axis). The line generally displays an unpward trend from $40,000 to over $55,000, an overall 25% growth over the past 18 months. Line graph showing median revenue (Y-axis) reported by small businesses over time by months (X-axis). The line generally displays an unpward trend from $40,000 to over $55,000, an overall 25% growth over the past 18 months.

Despite cooling, inflation remains a concern.

While inflation has cooled in recent months, businesses continued to feel its impact on expenses in the last quarter of 2023. Business owners are focused on business margins and generating the cash flows needed to meet current obligations and manage growth. As a result, they must carefully consider operating expenses, hiring practices and expansion plans. This is especially important as small business owners closely manage cash flows and often rely on access to credit to bridge the gap between current expenses and future revenue.

Inflation's impact on cash flow is slowing.

Small businesses are concerned about the trailing impact of inflation on their operating expenses, with margins starting to improve after having absorbed cost increases in many areas — supplies, transportation, equipment, and even utilities. To combat inflation, the Federal Reserve has aggressively increased interest rates, leading traditional lenders and banks to pull back on lending for small businesses. However, they have been able to turn to experienced specialty lenders to fill the gaps in the capital needs, as evidenced by application rates.

Working capital is perhaps the most important part of starting and expanding a business, as it supports paying the bills, hiring or expansions in offerings that can grow the business. Our survey shows that 70% of small businesses have less than four months of operating cash (they would like more), and the cash flow data shows that for most businesses, 90% of revenue is consumed by operating expenses (before interest, debt repayment and taxes).

Expenses consume more than 90% of revenue for small businesses.

70% of small businesses have less than four months of cash available to cover operating expenses and support future growth.

Revenue-to-Expense Ratio

Line graph showing the revenue-to-expense ratio (Y-axis) reported by small businesses over time by months (X-axis). The line generally displays a flat trend, between a 99% and 101% revenue-to-expense ratio, over 18 months. Line graph showing the revenue-to-expense ratio (Y-axis) reported by small businesses over time by months (X-axis). The line generally displays a flat trend, between a 99% and 101% revenue-to-expense ratio, over 18 months.

Hiring qualified staff continues to be a challenge.

Having qualified staff is a critical component of long-term growth. The strong labor market has led to employee shortages and higher salaries across a number of industries, causing a majority of small businesses to express concerns over their ability to hire and retain qualified employees.

Regional findings

Over 65% of small businesses in major metropolitan areas — including Boston, Chicago, Cleveland, Kansas City, Philadelphia and Minneapolis — were moderately, very or extremely concerned about hiring qualified staff.

Ocrolus findings

Ocrolus data shows total revenue spend on payroll steadily increased over the 18-month period.

Over half of small businesses expressed concern about being able to hire qualified staff.

Hiring qualified staff was most concerning (70%) for small businesses in the accommodations, food and construction industries.

Payroll-to-Revenue Ratio

Line graph showing the payroll-to-revenue ratio (Y-axis) reported by small businesses over time by months (X-axis). The line generally displays a varied line, between a 16% and 20% revenue-to-expense ratio over 18 months, that is higher than 20% the last two months. Line graph showing the payroll-to-revenue ratio (Y-axis) reported by small businesses over time by months (X-axis). The line generally displays a varied line, between a 16% and 20% revenue-to-expense ratio over 18 months, that is higher than 20% the last two months.
Download Full Results

Methodology

OnDeck analyzed survey responses from 499 current customers, who completed the survey Dec. 12 - 15, 2023. Please note, we have not verified this data or survey responses, it may contain errors or inaccuracies, and we make no representations or warranties as to its reliability, accuracy, or applicability. Customers received an incentive for completing the survey.

Purpose

The index is designed to reflect the cash flow, financial health and liquidity of small businesses in the United States. Through tracking of this index made possible by the unique combination of data available to Ocrolus and OnDeck, it will be possible to understand the trends affecting small businesses, the economic environment in which they operate and their access to capital.

Data

Ocrolus receives data on hundreds of thousands of small businesses each month as part of their applications for credit. The data consists of transactional bank data in the form of bank statements or digital bank data feeds, generally comprising the most recent 3 - 6 months prior to the time of application. Ocrolus then uses its proprietary transaction tagging and analytical capabilities to generate a detailed set of cash flow attributes for each business, thereby facilitating a lender’s understanding of its financial health and ability to service additional debt. Each index release will include data from the prior 18 months; the first index will cover July 2022 through December 2023 and comprise data from approximately 3 million small business applications.

Filtering/Exclusions

The data are filtered to include only applicants within the 50 U.S. states.

Calculations

For each small business, for each calendar month, Ocrolus calculates revenue, credits, debits, expense, payroll, non-sufficient-funds transactions, proceeds from lenders, payments to lenders and the use of alternative payment methods. The above data set is summarized into the following time series data for the past 18 months:

  • Median revenue time.
  • Median expense.
  • Median credits and debits comparison.
  • Median revenue-to-expense ratio.
  • Median payroll outflow.
  • Payroll-to-revenue ratio.
  • Median bank balance.

The content in this report is for informational purposes only and should not be considered legal, accounting or tax advice. Any statements or information within this report are as of the date published and do not necessarily reflect the opinions of OnDeck, Ocrolus or any of their affiliates. The information in this report should not be relied upon as a substitute for independent research. OnDeck and Ocrolus do not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. Readers should verify statements before relying on them.

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