Probably everyone has at least daydreamed of starting their own business. A trendy restaurant, a vintage clothing shop, striking it rich with a new killer phone app – these are the dreams that keep entrepreneurs in the game.

But a new study shows that however creative the concept, small-business owners often lack the financial literacy to understand what they’re getting into. And that’s a big reason why something like half of all small businesses fail within about five years.

“Small businesses don’t fail because it’s a bad business. They fail because of cash flow problems,” Chris Wheat, director of business research for the JPMorgan Chase Institute and the lead researcher on the study, said this week.

The study, titled “Growth, Vitality, and Cash Flows: High-Frequency Evidence from 1 Million Small Businesses,” is based on data from business accounts held at JPMorgan Chase, the nation’s largest bank and an important backer of small-business education programs.

To boil down a mountain of data, the study reports that holding a cash buffer remains crucial to survival for a small business. Also critical is understanding the pattern of cash flow – money in vs. money out.

Some types of businesses see more volatile cash flow patterns than others. Case in point: restaurants. The life expectancy of a restaurant among the JPMorgan Chase account holders is just 3.7 years, the shortest of 12 industries studied.

Restaurants can be victimized by the double whammy of unexpected expenses and uneven revenues. Expenses can vary because they’re buying supplies all the time at often rapidly changing prices; and revenues fluctuate according to the day or the season. That pinches the amount of cash they have on hand, as evidenced by the amounts in their bank accounts, Wheat said.

“Restaurants we consistently find have more pronounced small-business challenges,” he said. “Restaurants tend not to be holding a lot of cash in their accounts. And if you put that together with any amount of volatility, it’s not surprising to see they have the highest likelihood of exiting.”

On the other end of the spectrum, real estate firms enjoy the longest life expectancy – nine years. They benefit from the opposite pattern that afflicts restaurants. Both revenues and expenses tend to be more stable and predictable in the real estate world, so it’s easier to keep a cash buffer.

The policy implications of all this are clear. More financial literacy is the key to small-business survival.

Small-business owners ought to take as much advantage of training and mentoring programs as they can. There are business incubators, training regimes like the Goldman Sachs 10,000 Small Businesses program, technology transfer offices at local universities that help commercialize important research, and much more. It takes more than wishing and hoping to make a dream come true.

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