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ProfitWise News and Views, No. 2, 2015
Measuring Small Business Financial Health

Throughout the Great Recession and continuing into the recovery, small businesses have played an important role in creating jobs and stabilizing communities. Stories of small business owners overcoming obstacles to provide valuable services and employment are highlighted regularly by pundits, politicians and policymakers alike. However, little attention has focused on the question of what drives the financial health of these often young, often very small businesses.

Most examinations of small businesses tend to focus on business characteristics or owner perceptions of external factors, such as the availability of capital or confidence in the economy. Few studies attempt to identify the factors behind resiliency. In 2013 and 2014, a team of investigators, including staff from the Federal Reserve Banks of Chicago and San Francisco, the business consultancy Fundwell and Pepperdine University’s Private Capital Markets Project, set out to identify key drivers that are associated with businesses in a state of strong or weak financial health. The objective was to create a set of measures for small business financial health that could be used to assess individual small businesses.

The results presented in this article represent a first step towards identifying attributes of financially healthy and resilient businesses.

Federal Reserve Bank of Chicago, 230 South LaSalle Street, Chicago, Illinois 60604-1413, USA. Tel. (312) 322-5322

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