Faces of working capital: the human impact of empowering small and midsize businesses

At C2FO, we often talk about our mission to liberate working capital and the global economic impact of freeing trillions of dollars in liquidity for millions of businesses. With numbers at this scale, it’s easy to lose sight of just what “access to working capital” means in human terms and just how much impact you have.

When companies like yours offer suppliers access to affordable working capital through C2FO, you do more than just build the health of your supply chain. By creating liquidity, you build a better world. Here’s how.

You empower SMEs to solve societal needs

Most successful entrepreneurs start businesses with some societal need in mind, according to N. Craig Smith, INSEAD Chaired Professor of Ethics and Social Responsibility.  Because these founders are more engaged in their businesses, their commitment to purpose is easier to maintain than it would be in a large, publicly-held corporation.

For Mary Ann Weerts, founder of fair trade clothing wholesaler Tey-Art, access to lower cost of capital helps her maintain a commitment to providing safe and healthy work conditions and well-paying jobs for artisans in Peru.

SME founders often have goals for societal benefit

Tey-Art also provides microloans to help her Peruvian suppliers launch their businesses.

Businesses like Tey-Art are a powerful force for integrating women and children into the economic mainstream. When you support the growth and success of SMEs that have fair trade practices, they, in turn, are helping developing nations alleviate poverty.

Economic opportunity also has impact in developed nations. Entrepreneurship fuels economic innovation and prosperity. It offers a means for families to move out of low-wage jobs and into the middle class, helping some close the income inequality gap.

You help SMEs build their local economies

For emerging markets, SMEs create seven out of 10 formal jobs. In the US, two out of every three net new jobs are created by the SME sector.

In Emporium, PA, manufacturer Embassy Powdered Metals added 50 jobs to their employee roster in April 2017, nearly doubling their headcount. The company’s market expansion allowed them to purchase local competitor American Sintered Technologies from its bankrupt parent company.

Had AST simply been shut down, noted Alan Ramsey, Embassy’s financial officer and co-owner, the impact of losing those jobs would have been devastating to the Pennsylvania county that is home to only about 5,000 residents. Embassy hopes to expand their operations, continue investments in employee training, and hire nearly 40 more employees in the future. Embassy uses C2FO to help control its cash flow as it rapidly expands and invests in employees and equipment. C2FO is the only such program Embassy uses.

Embassy’s owners have supported the region’s economy in other ways. Whenever possible, Embassy buys supplies, such as gloves and safety glasses, from local businesses. Embassy is also involved in a cooperative program with local educators to teach teens the skills they will need down the road for manufacturing jobs at Embassy and other companies.

“We want to help youth, and help the town,” said Ramsey. “That’s the battle here and in any small town … giving people a living wage is tough.”

Accelerated payments help companies like Embassy provide better pay. Research from the MIT Sloan School of Management and The Harvard Business School examined the impact of Quick Pay rules for small business government contractors. For each dollar of accelerated payment there was a nearly 10-cent increase in payroll. Overall, the direct effect of accelerated payments increased annual payroll by $6 billion, creating just over 75,000 jobs over the three years following the reform.

When your suppliers have good cash flow, they can afford to support their communities and smaller causes

SMEs support local charities from sponsoring little leagues to small organizations with big goals. But before SMEs can help others, they have to be stable themselves.

Sunday Afternoons’ community and charitable giving efforts are a successful example. From a product and marketing partnership with the International Dark Sky Association’s work to preserve the night skies, to helping fund She Jumps, a nonprofit devoted to educating women and girls about the outdoors, Sunday Afternoons cultivates authentic charitable partners who share their brand values.

SMEs invest in local communities and smaller CSR causes

Outside of these partnerships, Sunday Afternoons also donates hundreds of hats to volunteers at fundraisers. Their management team and employees commit time to serve on boards of directors for local nonprofits, volunteer in local community service projects. But, says Sameh, the types of charitable support Sunday Afternoons can offer is limited by their cash flow.

“If it’s a good year, we may do more monetary contributions than product donations,” Paulino said. “We can also give our time, which is not something to underestimate.”

Starting next year, Sunday Afternoons will expand their community service commitment by giving every employee a paid day off to volunteer at a nonprofit.

Joining a committee or providing sweat equity “helps a younger workforce understand what it looks like” to become engaged in helping others, Sameh said. She also believes the volunteer efforts help build a positive company culture and increases employee satisfaction.

Your suppliers’ success means better and safer work environments for their employees

Like Sunday Afternoons’ example, societal benefits of SMEs often extend to their employees.  In part, this is because founders and managers at a smaller size company are more likely to know their employees personally.  For SMEs like outdoor kit manufacturer Outdoor Living Today, a safe environment for workers is just as important as their sustainability goals for the greater environment.

“Our company has spent so much effort and dollars on making sure that our workers are safe and that’s probably our number one thing that we do better than anyone else in our industry and the forestry industry,” says OLT founder Greg Bailey.

When your suppliers have cash flow, customers benefit from their innovation and better pricing

The smaller size of SME organizations also fosters innovation. “Because of their size, SMEs are often much better at identifying and embracing new trends in the industry and, therefore, driving the innovation within their respective sectors. This allows SMEs to be pioneers in emerging technologies, paving the way for bigger and braver investments,” says Simon Blagden, non-executive chairman at Fujitsu UK & Ireland, in a post for Growth Business UK.

Ocean Yuan, founder of Grape Solar, reshaped the already cutting-edge renewable energy sector by creating the first direct-to-consumer retail option for solar technology. His thinking was revolutionary. And yet, logical. If a “green” technology is not accessible to consumers, it will never be economically sustainable no matter what the environmental benefit.

Grape Solar experienced 700 percent growth in just five years. They continue to innovate, collaborating closely with their consumer base for new product ideas.

“Sometimes people call, and they are more knowledgeable than us in certain areas and aspects. It helps us out in adapting and getting ahead of something before it happens. Sometimes they introduce product ideas that are not financially feasible or don’t make business sense, but it’s a cool idea coming from consumers,” says Jack Caruso, Project Executive for Grape Solar.

Grape Solar leverages Costco’s C2FO program to access cash flow for new product offerings and inventory.

“When we get a good price on inventory — and it’s a quality product, and we want to move on it — C2FO is a good way for us to move some cash. It’s more competitive than getting a loan from a bank. It’s just another tool you can use to diversify the options you have,” he says.

Caruso adds that C2FO is a valuable tool to bridge cash flow. It allows Grape Solar to take advantage of lower cost inventory and then pass those savings along to retailers and customers.

Your role as a customer holds the key to growing the global economy

Small and midsize businesses (SMEs), companies of 250 employees or less, are the lifeblood of the global economy. Globally, SMEs represent more than 95 percent of registered firms, accounting for more than 50 percent of jobs. SMEs contribute more than 35 percent of Gross Domestic Product (GDP) in many emerging markets, a number that swells to over 50 percent for developed countries. In the top 10 cities of the UK alone, SMEs are projected to contribute £241bn to UK economy by 2025.

Collectively, the impact of SMEs is staggering. Also staggering is the gap between the current impact of these companies and their potential impact. SMEs in both emerging and developed markets lack access to affordable financing. Most, 74 percent on average globally, rely on cash flow and internal funds for working capital while managing against an ongoing trend of late payments from their customers. Unlocking this cash flow trapped on corporate balance sheets for SMEs has powerful implications for the global economy.

SMEs are critical for economic growth, which explains why there are so many policy initiatives and programs in place, or in discussion from the G20 Summit and the World Bank, to regional, national, and local efforts across the globe. But policies take time to implement and more time to have an effect. Next decade’s policy initiative won’t help SMEs who need cash flow for this month’s payroll. Fortunately, there is a more immediate and direct solution: you.

As individual consumers, the choices we make impact the success of businesses we frequent — or don’t. Corporates, as customers to a global supply chain, have exponential impact.  Those who source goods from SMEs and ensure these suppliers have access to affordable working capital make it possible for these SMEs to grow, hire employees, pay their suppliers, and give back to their communities. The biggest key to empowering SMEs isn’t economic policy or global initiatives. It’s responsible customers.

Sources

  1. “What’s Happening in the Missing Middle? Lessons from Financing SMEs,” Salman Alibhai, Simon Bell, and Gillette Conner, World Bank
  2. “SMEs to contribute £241bn to UK economy by 2025,” Centre for Economics and Business Research, Business Quarter Live
  3. “When It Comes to CSR, Size Matters,” N. Craig Smith, INSEAD Chaired Professor of Ethics and Social Responsibility, Forbes
  4. “Creating Jobs By Investing In Small Business,” Michele Schimpp, SBA News and Views
  5. The importance of SMEs,” Simon Blagden, Growth Business UK
  6. “Small and medium-sized businesses can lead the agenda on sustainable growth,” Mark Hillsdon, The Guardian
  7. “Three Reasons Community Matters For Small Business Success,” Amanda Brinkman, Forbes
  8. “Financing SMEs and Entrepreneurs 2017, AN OECD SCOREBOARD” Organisation for Economic Co-operation and Development
  9. “Small Businesses = Big Impact,” Rebecca O. Bagley, Entrepreneur
  10. “Growing the global economy through SMEs,” Edinburgh Group Research
  11. “Want to Cure Income Inequality? Promote Entrepreneurship.” Entrepreneur
  12. “Faster Payments to Small Businesses Leads to Job Growth” MIT Sloan School of Management