Nearly 34 million small to medium-sized businesses (SMBs) in the United States pay 39.4% of private sector payroll, are accountable for 46.4% of private sector employees and generate 32.6% of known export value. Their growth, contraction, expansion and transformation are an accurate barometer of the country’s economic health as these companies respond quickly to changes and disruption. Over the past few years, SMBs have had to be resilient in the face of challenges that include geopolitical conflict, rising inflation and interest rates, and supply chain disruption. However, over the past year, these companies have shown steady recovery across multiple verticals with a Total Deposit Volume increase of more than 70% year-on-year, according to Revenued’s SMB Health Index Quarterly Update Q4 2023.
The Index aggregated banking data from more than 20,000 American SMBs across multiple sectors to find trends across specific industries that include professional services, construction, home improvement, transport and restaurants. The Total Deposit Volume (TDV) only includes deposits that reflect actual business revenue to provide visibility into revenue streams within the SMB sector. While it showed a significant increase over the course of the year, it did dip in December 2023. It remains uncertain as to whether this is a downtrend or a temporary seasonal blip but the TDV is still 76% higher than in December 2022.
The data shows that commercial construction companies are performing well with strong growth while companies within the home improvement niche are still struggling with growth and cash flow.
Average Daily Bank Balances provide a metric against which financial stability within the sector can be assessed and, over the past year, it has shown steady growth from $8,000 in December 2022 to almost double that by the same time in 2023. The growth here is likely driven by increased revenue and TDV and also potentially underscores a growing shift in SMB business behaviors as companies recognize the value of keeping a financial buffer.
Analyzing the data across companies, there is a clear trend towards resilience in 2024. SMBs appear to be focusing on building stable financial foundations capable of withstanding ongoing disruption and uncertainty.
Sol Lax, CEO at Revenued said, “Following signs of recovery across most industries from post-pandemic struggles to start 2023, our latest report shows an even stronger finish to the year and we anticipate continued growth in 2024.”
Another positive metric is access to capital – SMBs benefitting from external funding and investing in a growth strategy are equally likely to focus on financial health and stability. Using outside funding to make payroll, cover operating costs and gain access to higher amounts of funding, equals a level of resilience for the SMB. This business funding provides SMBs with the capacity to expand their services to existing customers and grow into new markets and has remained steady throughout 2023. The Index found there was a general trend of SMBs keeping their options open and securing lines of credit or access to capital as a way of proactively guarding the business against a downturn.
In the restaurant sector, rising food costs are squeezing tight margins for SMBs resulting in an uptick in financing queries; while in the transportation sector, SMBs are still battling tight margins and competition. However, SMBs in the construction sector are using finance to bridge the gap between paying for upfront costs such as labor and materials and receiving payment for their work.
Overall, the Index has found that SMBs are stronger and in a better position than they have been for quite some time. There has been steady improvement over the past year after the rough landing in 2022 as many in these industries found their footing and performance improved across key banking indicators. Stronger businesses have emerged from the recent downcycle and today, more SMBs are positioned for success through a variety of factors that include quality services and products, better capitalization for growth, and profitability.
Lax added, “Already underserved by traditional banks, many SMBs continue to face challenges obtaining the funding they need. Revenued’s financing solutions built on machine learning and AI technology help bridge this gap, making it easier than ever for SMBs to apply and receive funding decisions in as fast as an hour.”
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