Small Business Owner Liquid Wealth at Firm Startup and Exit

In this brief we studied the liquid wealth of small business owners as they start new firms, and as they close firms. To do this, we leveraged a unique data set that offers a granular, longitudinal, and high-frequency lens on financial outcomes, both for people and the businesses they own. Importantly, it provides a perspective on the financial health of small business owners before they open their businesses. Our lens on liquid wealth is the average daily balance across all savings and checking accounts held by a person or small business in our study period. It does not include assets contributing to total wealth like brokerage accounts or physical property. While our focus on liquid wealth structurally understates the total wealth available to people, it provides an unprecedented lens on the evolution of small business owner finances through the entrepreneurial life cycle. Moreover, if people with more wealth generally hold more cash than those with less wealth, then liquid wealth can still provide a view of relative wealth. Our findings are threefold. First, we find that the typical small business owner had higher liquid wealth than wage earners prior to starting a small business. Second, among small business owners, differences in liquid wealth may impact a small business’s ability to grow and, therefore, generate wealth for the owner. Third, small business owners who close their firms tend to have lower liquid wealth than owners whose businesses stay open