Cash Flow Concerns Rise as SMBs Brace for Economic Downturn

CBIZ, Inc. (NYSE: CBZ), a leading provider of financial, insurance and advisory services, has released the results of its Q3 2023 Main Street Index, taking the pulse of and gauging the outlook for small and mid-sized businesses (SMBs) amid the current economic downturn. While most businesses expect the economy to continue its current downturn, additional data points to some concerns on Main Street, notably with cash flow and higher borrowing rates.

While down seven percent from Q2, still two in three (67%) SMBs expect an economic downturn. Sixty-five percent of businesses felt moderately to very confident that they have the cash flow sufficient to continue operations in the event of a down market or other market disruption. Thirty-five percent have anywhere from wavering to no confidence. Ranked from zero (no confidence) to 10 (completely confident), only 13% of businesses shared a sentiment of three or below. Additionally, the Index saw a sharp rise in Main Street businesses experiencing higher borrowing costs, with 41% reporting they faced higher rates on new loans or in refinancing, compared to 27% of businesses in Q2.

“Cash flow is the lifeblood of any business and is what stands between growing and going bankrupt. Similar to how consumers are feeling the pinch, in part due to running out of stimulus and the resumption of federal student loan payments, PPP funding for small to mid-sized businesses is running dry,” says Anna Rathbun, chief investment officer of CBIZ Investment Advisory Services. “This financial pressure is forcing many Main Street businesses to make tough decisions, especially around labor. The data suggest a concerning trend: Businesses may have leaned into the side of overhiring amid the labor shortage concerns, and now, as demand for discretionary goods wavers, we're seeing a workforce that's not being fully leveraged. It clearly indicates the broader economic challenges we're facing.”

Based on a survey conducted August 7-28, the Index analyzed responses from 902 businesses with fewer than 100 employees in 31 industries across the U.S.* The Index assesses a range of timely trends, including business sentiment, areas of growth and decline, and cash flow.

The data was evaluated from an overall perspective, as well as based on company size, region and industry. An interactive infographic with the results is available on the CBIZ website. Key findings include:

• Product and service prices continue to rise due to inflation or inventory levels: Nearly 57% of companies raised prices in Q3, on par with the same data point from Q2. While the price increases continue, sharp price increases are tapering off. Just under 20% of companies raised prices for customers and vendors anywhere from one to four percent, up more than five percent from Q2. This may indicate a tapering down of dramatic pricing corrections to more of a steady inflationary pricing strategy.