Big Challenges for Small Firms: Small Firm Diaries Issue Brief

Small firms frequently need to respond to instability and volatility, despite having little financial cushion to draw upon. This makes managing the business more complicated, more mentally taxing, and riskier, and has consequences across several major areas of a business’ operations. The uncertainty and irregularity of cash flows make firm owners wary of taking on additional commitments that require making major payments on fixed dates or in steady increments. Similarly, owners may try to pay workers as flexibly as possible (only paying them when work is completed, for example) and letting workers go.