A team of field researchers visited a sample of small business owners weekly for a year to collect quantitative and qualitative data on their financial flows that shed light on small business economic decision-making, strategies, and constraints as they navigate the uncertain situations.
The result was presented as Small Firm Diaries (SFD), a study that provides insight into the financial lives of small businesses in low-income neighborhoods in developing countries.
Small Firm Financial Diaries is a global research project running in seven countries: Nigeria, Uganda, Ethiopia, Kenya, Indonesia, Fiji and Colombia, from 2021 to 2023.
This is carried out by The Financial Access Initiative research center of the University of New York and the Javeriana University, with the support of the Center for Inclusive Growth of Mastercard and its results will allow the design of development policies, financial services and future tools to help small businesses and their employees to prosper.
The study aims to improve understanding of how small businesses can overcome the barriers they face to survive and thrive in the modern economy and thus contribute to poverty reduction.
Results in Colombia
In Colombia, the study focused on three industries with potential for rapid growth in revenue and employees. Half of the companies in the sample are dedicated to printing, repair and maintenance, and food preparation services; 30% in small-scale manufacturing, such as carpentry and metalworking; and 20% in agribusiness, such as leather goods and food preservation.
Carried out in Bogotá, Cali and Barranquilla, the study showed that, although the country stands out because its small businesses show higher monthly income than the rest of the countries, most of these incomes are less than 5 million pesos per month, which which is less than five minimum wages.
Ownership of bank accounts
Regarding the ownership and use of bank accounts, there is still work to be done, since only two-thirds of the companies in the sample for Colombia have a bank account. Although there are mobile wallets in Colombia that operate through mobile phone applications and offer an easy and fast way to digitize payments, only a quarter of these companies have one, and most use them.
Quality of life
A third of the employees of these companies in Colombia report having difficulties obtaining enough money to buy necessary items for themselves and their families.
Business credit
Regarding indebtedness, the companies analyzed tend to prioritize working capital over investment. Liquidity is not great and there is already enough volatility in earnings and other operational risks that it can lead to negative cash flows, according to the SFD.
Difficulty holding stable jobs
The investigation found that employees cannot count on fixed salaries. These tend to vary based on the company’s monthly revenue, which the study explains is highly variable. There are even employees who go a few months without being paid. In Colombia, only a third of the interviewed employees received a salary for 6 months or more during the study.
conclusions
In general, the study concluded that stability is a priority for the entrepreneurs interviewed. According to the research, these companies face great volatility in their income and expenses.
In addition, interviewees see “rising costs and supply problems” and “access to financing”, particularly liquidity, as the main obstacles to realizing their growth vision.
“Studies such as the Financial Diaries allow us to better understand the dynamics of small businesses in Colombia.
What are the challenges they face, how they make day-to-day decisions, the relationship with their employees, suppliers, competitors and customers.
We observe that the high volatility experienced by small entrepreneurs is transferred directly to their employees, which keeps them at a high level of vulnerability and job instability.
It is important, then, to look for tools to reduce the volatility of businessmen and also to protect the large labor force they employ,” says Luz Magdalena Salas, associate professor in the Department of Economics at the Pontificia Universidad Javeriana.
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