Small business management is never easy but building a strong enterprise can seem impossible during times of economic uncertainty. Whether your business is presently struggling, or you want to future-proof it against common issues, this page will walk you through what to look for and how to fortify your business going forward.
Common Financial Management Challenges Small Businesses Face During Times of Economic Uncertainty
Before we begin, it’s important to have some background on the financial challenges small businesses often face in times of economic uncertainty. Even if you aren’t facing these challenges currently, being aware of them can help you plan for future uncertainties in your business.
Budgeting
Nearly two-thirds of small businesses don’t have an official documented budget under ordinary circumstances, according to Clutch. The figure jumps to nearly three-three quarters for businesses with between one and ten employees.
During times of financial uncertainty, it becomes that much harder to create a budget and stick to it. Clients are typically slower to pay their invoices, vendors often start charging more, and customer spending can drop in non-essential industries.
Even still, budget management and monitoring is one of the top four things successful businesses have in common, according to research by the Federal Reserve Bank of Chicago. You must create a budget. It’s ok if it needs to be adjusted as you go. Get the basics documented, so you’ll have a better idea of where you stand and where you want to be.
Making Payroll
More than two-thirds of workers live paycheck to paycheck, according to the American Payroll Association. If their paychecks were delivered a week late, around 35 percent say it would be somewhat difficult to meet their financial obligations, and 29 percent say it would be very difficult. It’s no surprise, then, that 44 percent of employees who are paid incorrectly will start looking for alternate employment, per Keka.
Making payroll is one of the most important things you can do as an employer. The importance of this becomes even more apparent during difficult times such as economic downturns when employees are stretched thin, just like you are. Having cash set aside for payroll is one of the four commonalities successful businesses share, per the Federal Reserve Bank of Chicago’s research too.
Staying Ahead of Expenses
Overall, 60 percent of small business owners say cash flow has been a problem per Intuit. This ties back to cash flow and budgeting. If you don’t know what’s coming in or when it’s coming in, it’s difficult to make timely payments of your own.
Controlling Debt
The ability to repay debt has decreased for all businesses except very large ones, according to Deloitte research. Strapped for working capital, it is not uncommon for businesses to take out loans with unfavorable terms in an inflationary environment in order to get them through economic times of uncertainty. However, small business recovery tends to be slower. It’s common for small businesses to get caught in a debt trap, making interest-only payments and never getting ahead.
This may be why a high level of unused credit balance is one of the four traits successful balances share, per the Federal Reserve Bank of Chicago’s research. It’s second only to having knowledge and experience with credit.
Obtaining Financing
Just 42 percent of businesses have their funding needs met, compared to 47 percent last year, according to the latest Small Business Credit Survey. The reasons for this are myriad. Denials are up, and even those who are approved still don’t receive the amount they need. Many are discouraged by these figures and don’t bother to apply, while the number of debt-averse business owners is climbing too.
Tips for Managing Your Small Business Through Economic Uncertainty
Next, let’s take a look at some additional ways you can help your business stay strong during times of economic uncertainty.
Evaluate and Improve Your Cash Flow Management
Eight in ten business failures can be tied to cash flow management issues, according to research presented by Entrepreneur. Some relate to common cash flow management mistakes, such as not actively requesting payment of receivables. Others are more about not seizing opportunities to improve cash flow, such as accelerating receivables and opting for leases over purchasing.
Explore ways to reduce and slow your cash outflows while increasing and accelerating your cash inflows. Follow financial management best practices, such as creating a budget, and never put your greatest asset (your talented employees) at risk by missing payroll.
Automate Processes Where You Can
More than three-quarters of businesses that automate feel more comfortable responding to a crisis than their counterparts, according to Zapier research. Nearly a quarter of those using automation software were exceeding their pre-pandemic revenue by May 2021 too.
The top benefits gained through automation include:
- Greater Productivity
- Enhanced Focus
- Reduced Stress
- Cost Savings
Work with your team to identify tedious, repetitive tasks that each person handles. For example, you can automatically enter new leads and customers into your CRM based on data they provide in forms or at checkout. Emails can automatically be sent internally or externally after specific actions are taken or sent on a schedule. There is a myriad of payroll and billing tasks that can be automated too.
Focus on Your Customers
Happy customers are the lifeblood of your business.
- More than two-thirds of customers are willing to pay more for products and services when the brand offers good customer experiences, according to HubSpot.
- Nearly nine in ten customers are more likely to make another purchase after they’ve had a positive customer service experience per Salesforce.
- Increasing customer retention by just 5 percent can boost profit by 25 to 95 percent, according to Bain and Company.
Use surveys to gauge client happiness and identify pain points, then address the issues you uncover. As satisfaction grows, your cash flow and profit will improve too.
Investigate Financing Options
Even if your business doesn’t need cash right now, you should always be prepared with a backup form of funding. Approval rates are low during times of economic uncertainty, and even those who get funding don’t usually receive everything they need.
Explore all potential working capital sources, not just traditional options like small business loans and lines of credit.
Invoice Factoring Can Save Time and Provide Immediate Cash Flow
One alternative is invoice factoring. Instead of taking out a loan that you pay back with interest, factoring involves selling your unpaid B2B invoices to a third party, known as a factor or factoring company. You get most of the invoice’s value right away, then receive the remainder minus a nominal factoring fee when the client pays. There’s no debt to pay back because your client clears it when they pay their invoice. Most businesses qualify, including startups and those without strong credit.
Accelerate Your Cash Flow with Charter Capital
If you’d like to accelerate your cash flow through invoice factoring, connect with Charter Capital. With decades of experience and competitive rates, plus perks such as same-day funding and free collections services, Charter Capital can help your business weather uncertain economic times and come out stronger. Request a complimentary rate quote to learn more or get started.
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