Is Your Business Ready for Financial Challenges? 4 Smart Ways to PrepareChristine Soeun Choi
This guest post comes courtesy of Christine Soeun Choi, SEO associate at Fit Small Business.
Starting a business is no easy feat. Even with plenty of planning before you launch, you’ll still come up against obstacles that will make it difficult to succeed, particularly when it comes to finances. In fact, 29% of small businesses fail because they run out of cash. And that’s just one of the financial challenges you may encounter in your business.
If you prepare for financial challenges ahead of time, your business has a much better chance of success. Keep reading to learn what you need to know to overcome the most common financial challenges facing small businesses.
Challenge 1: Not having enough capital
Being underfunded is one of the top causes of small business failure, but it’s easy enough to prevent. Start by creating a detailed budget for not just your startup expenses, but also what you’ll need to run the business for at least six months. Many first-time entrepreneurs assume they’ll be bringing in a profit quickly, so they don’t budget enough for operations and then struggle to pay the bills. Don’t forget to factor in your own salary!
Nasty Gal is a well-known example of a business that failed due to lack of capital. Nasty Gal, a fashion brand that made a huge splash a few years after it launched in 2006, ended up filing for bankruptcy 10 years later. Despite the brand’s popularity, it was overspending on advertising without retaining enough business to cover its expenses. The company was sold and now continues under new ownership.
The next step is to explore your financing options. Maybe you have money saved that can help bootstrap the business. If not, consider applying for a Small Business Administration loan. These loans are designed for small businesses like yours, and have low interest rates. You can also consider bringing on an investor, or even crowdfunding. Whatever option you choose, just make sure there’s plenty of money to run your business right.
Challenge 2: Feeling overwhelmed with the tax process
You might have managed to file your own personal taxes in the past, but maybe these business taxes are throwing you for a loop. And they should, to a degree. The last thing you want to do is file your taxes incorrectly, or pay more than you have to.
This is a good time to hire an accountant or professional tax preparer to ensure that you’re getting all the tax deductions your business qualifies for, as well as properly categorizing your business expenses. This reduces the chance of being audited, which nobody wants.
Challenge 3: Your clients pay late
Another common financial conundrum small businesses face is clients dragging their feet when it comes to paying their invoices on time. Late payments can create a cash crunch that prevents you from paying your own bills on time.
To prevent this, establish a payment policy up front, and clearly communicate it to clients. Let them know when payments are due (i.e. 15 days net). You might also consider charging a late fee for invoices that aren’t paid on time as a way to light a fire under those slow-paying clients. Progress billing is another option that allows you to bill clients at each stage of your project. Alternately, you can offer a discount for invoices paid early.
Challenge 4: Not being able to afford additional staff
As you grow your business, you will likely find that you can’t do it all on your own. That’s where hiring employees comes in...but what happens if you don’t have the budget to hire full-time assistance?
A good alternative is hiring freelancers, part-time help, or an agency to assist with things like marketing, accounting, graphic design, or administrative tasks. Because you just pay for the hours you need and don’t have to worry about paying for employee benefits and other long term costs, you can save money while still getting the extra hands you need to grow your business. Just make sure you choose a reputable freelancer or agency that can service your specific business needs to ensure you’re getting the best bang for your buck.
Planning and preparation prevents disaster
Financial challenges like these can be prevented with a little planning and preparation. Whether you’re just starting your small business or are ready to grow, make sure you set aside money from your profits so that, should the unexpected happen, you’ve got capital available to cover those expenses. Be sure to get help with your finances by working with a professional accountant, especially at tax season, and ensure your accounting software is set up properly and working for you.
Following smart financial practices means you have one less thing to worry about in your small business!