Big Challenges for Small Firms

The Financial Access Initiative at NYU Wagner launched the Small Firm Diaries to better understand a specific group of small businesses: firms in low-income neighborhoods around the world with at least one and no more than 20 non-family, paid workers. These are referred to as “small firms” to distinguish them from “microenterprises,” which traditionally have no paid workers beyond immediate family members. The analysis below focuses on firms in Colombia, Nigeria, Kenya, Ethiopia, and Indonesia.

As part of the study, firm owners were visited every week for a full year. These frequent visits made it possible to capture dynamics that are often missed in typical yearly or even quarterly surveys, particularly the week-to-week variability in both income and expenses that firm owners face. This variability affects all aspects of business operations, from managing workers to inventory to cash flow. Some of this variability is predictable, while some is not, but both can be difficult to manage and require skill, resources, and sustained attention. Navigating these ebbs and flows, in contexts characterized by high uncertainty and limited financial buffers, represents a major constraint, both on its own and in combination with other challenges such as poorly functioning capital and labor markets.