Small Business Owners Are Optimistic. Will The Private Sector Help Them Succeed?

More than 10 million small businesses were created in the past two years – a record-setting number for new applications. And according to a recent survey, small businesses are not just growing in number, but increasingly optimistic about their future. In fact, nearly three-quarters of small business owners feel more confident now about the financial prospects of their company than at the beginning of 2023. 

But even as small businesses remain optimistic, high interest rates and inflation remain omnipresent threats. A lack of cash flow or working capital can make or break a business – no matter the strength of a product or service. 

In this economic climate, it is increasingly critical that technology providers and banks work together to give small businesses a competitive advantage. It is time to accelerate the adoption of embedded finance, which has benefited consumers for years. 

Embedded finance – the integration of financial tools into platforms or services – is far from a brand-new concept. Over the last decade, consumers have reaped the benefits of embedded finance offerings in banking, lending, insurance, and payments. They are accustomed to linking their payment methods when ordering rideshare services, buying a coffee, and purchasing clothes online.  

But small businesses haven’t enjoyed the same benefits. As the lynchpin for the greater economy, small businesses deserve embedded finance offerings – and have a critical need for them – too. 

For example, cash flow remains a top concern for small businesses. With the cost of rent and ongoing expenses at record highs, small businesses are struggling to ensure there is more money coming in than going out. Many small businesses cannot afford to hire a bookkeeper or accountant, with a striking 81 percent of small businesses responsible for their own finances. Impressively, many small business owners learn financial management skills on the job.

However, financial management tasks are physically exhausting, emotionally overwhelming, and stressful. Since tasks related to managing finances also feel very personal, small business owners are sometimes hesitant to hand over these responsibilities to others and often end up spending more time on these tasks than on other areas they find more fulfilling. 

Small businesses are also overwhelmed with “platform paralysis.” Managing different bank accounts, accounting software, ecommerce platforms, payment gateways, B2B payment platforms, spreadsheets, emails, and paper invoices – a disjointed patchwork of platforms and processes – has created inefficiencies in cash flow management. 

In a typical day, an ecommerce seller, for example, may use separate software to manage payroll, send invoices, track expenses, make payments, and manage inventory. Many of these systems are not integrated, which means that he or she may spend hours each week manually re-typing information. Without integration, it can be difficult for small business owners to see the big picture of their businesses’ finances and make informed financial decisions.  

The reality is that embedded finance has the potential to increase small businesses’ 70 percent five-year survival rate by saving entrepreneurs time and giving them a better understanding of their businesses’ financial health. And with the economic outlook far from certain, embedded finance could give small businesses the boost they need to weather any challenges to come.  

For this to work, however, technology companies and banks must embrace this new vision of how small businesses can more efficiently run their businesses and work together to bring these services to market.

  • Prashant Gandhi

    Prashant Gandhi is the Chief Business Officer of Melio, a leading B2B payments company for small businesses headquartered in New York. Prior to Melio, he was Managing Director at JPMorgan Chase and Chase’s Head of Digital Payments, where he built a team that managed the entire suite of digital payment products used daily by Chase's nationwide retail and small business customers. Before joining JPMorgan Chase, Prashant spent 16 years at McKinsey & Co as a Partner in its Delhi and New York offices and helped launch a new practice called McKinsey Digital as the Global Chief Operating Officer.