Aquila is a small business, cash performance analytics, and receivables financing marketplace. In November 2016, we at Aquila, launched our first small business, bank analysis and receivables financing transactions. More than a year later, over 4,000 Small Business merchants and their Independent Sales Organization (ISO) partners come to us to seek cash flow support and receivables financing. In 2017, Aquila monitored over 20,000 merchant bank accounts, extracting bank data, and seeking cash flow patterns that would help small businesses survive. We studied small businesses ability to complete payments on short-term debt including, receivables financing, leases, and credit card debts. Today, we are excited to share the top five (5) SIC codes where small businesses have the best cash flow performance. Merchants in these codes are able to meet their short-term, debt financing payments, and without too much stress on business operations.
Number 5: Professional, Technical and other Consulting Services (NAICS CODE: 54)
Professional, technical and consulting services usually include highly-skilled, professional services. Examples of small businesses in this segment include accounting services, security services, Information Technology (IT) consulting, and Human Resources (HR) consulting. These firms are usually led by one owner who has a “key client” contract, or relationship, driving a major share of their deposit cash flow to the business. When a consultant/owner loses a key client, cash flows are disrupted and it may take time to identify a new client or to secure a new long-term contract. When a consultant gains a new client, owners often will finance their contract with advances against their future receivable payments. These businesses are also sometimes seasonal. Accountants and bookkeepers, for example, usually don’t see their businesses pickup until after the Christmas and New Year Holidays. As such, slow cash days are very common for these businesses at the end of the summer. During these slow periods, this industry group is at its highest risk for slow pay or possibly defaults on their obligations. This industry segment enjoys its highest cash flow days are during the first 2 quarters, or six months of the year. We encourage brokers and ISOs to increase their marketing to this industry just before the end of the year and into January and to limit marketing before the slow summer months.
Number 4: Finance and Insurance (NAICS CODE: 52)
This industry segment consists of mostly insurance companies run by franchise business owners and may include insurance franchises as well as financial advisors. Insurance does not appear to suffer the strong seasonality as some other industries, such as bookkeeping and accounting services. Insurance products are sold all year round. The merchant bank data that we analyze, in this space, reflect consistent revenue deposits, tied to a major franchise partner’s brand. These franchise enterprises appear to have sufficient marketing resources to help their franchisee drive continuous business sales all during the year. This group performs well on continuous average daily balances that are well over $2,000 per day and with monthly deposits that may easily surpass $20,000 per month, for single-franchise owners. The number of business owners who enter these businesses are consistent and reliable.
Number 3: Accommodation and Food Services (NAICS CODE: 72)
On Aquila, the majority of companies, we see, in the accommodation and food services group are retail food businesses. Size varies from large city restaurants, all the way to small coffee shops and even street food vendors. These small businesses are usually single owner and their merchants have consistent, localized, demand that they are able to support with their businesses unique location. This group also appears to be well targeted by alternative finance companies. Our analysis of their bank transaction records show a number of alternative financing companies that support them with various financing products. The low barrier to entry into this industry segment also makes this a very large and active industry segment. It’s our view that this group may see the most competition from small business financing brokers, making acquiring clients in this segment the most expensive of all five. We are not confident that this segment will experience high growth, given competition intensity.
Number 2: Health Care and Social Assistance (NAICS CODE: 62)
Merchants in this group included several elderly care facilities and nursing homes. Rehabilitation centers and wellness centers were included as well. We continue to see more merchants from this segment come to Aquila for cash flow analysis. We are confident that as Baby Boomers continue to enter into retirement, this group will continue to grow as a small business opportunity. The barriers to launch facilities appear to be low and we have seen a number of single-owners of companies in this group. This group exhibited some of the highest, consistent deposit cash flows of all businesses on Aquila. However, these businesses appeared to have the lowest operating margins of our top five grouping, as most of their payables were to labor and real estate expenses. Nonetheless, we continue to see many new companies and growing established companies in this space. We expect it will continue to perform well in 2018 and beyond. We recommend that sales executives and brokers continue to target this industry group.
Number 1: Real Estate Rental and Leasing (NAICS CODE: 53)
In 2017, real estate rental and leasing was Aquila’s best performing small business NAICS code group. These small businesses generated substantial business revenues. Merchants in this group usually had the best cash flow performance and gross margins that allowed them to seek out and repay their business financing comfortably. This group also experience the lowest number of short-term defaults or cash flow problems of all industry groups. Out of the Aquila sample, this group exhibited high average daily balances over a sustained 3 month to 6 month period well over $10,000 in balances, per day. These merchants also had the least number of judgements and liens against their business, or owners, for prior non-repayment of financial obligations.
Given the threat of rising interest rates, in 2018, we are unable to predict whether this group will continue to perform as strongly in 2018 as it did in 2017. However, we encourage brokers, sales executives, and ISO teams to direct their marketing dollars to this industry and ancillary or related businesses that will depend on it success.
For the rest of February, Aquila offers a flat 10 points for all closed deals in this group to FIRST TIME FUNDING ISO partners. To get started, login to your Aquila Cash Flow ISO dashboard and share your ISO referral link with merchants that are from the best performing industry segments and let’s fund.