by Jean Miller | News, Newsletter, Small Business
Navigating the financial landscape is paramount for small businesses to thrive, but there are ample opportunities for errors that can hinder success. In this article, we’ll go over key strategies that small businesses can implement to sidestep common mistakes and achieve financial stability.
Prudent Budgeting
Effective budgeting is the foundation of sound financial management for small businesses. By creating a comprehensive budget that accounts for both fixed and variable expenses, you can gain better control over your finances and allocate resources strategically. Regularly review and adjust your budget to reflect changing circumstances and priorities, track expenses, and review financial reports to ensure that your business remains on track financially.
Build an Emergency Fund
Unforeseen expenses and economic downturns can pose significant challenges for small businesses. Building an emergency fund provides a financial safety net, which will help to weather unexpected storms without jeopardizing business operations. Aim to set aside a portion of business revenue each month into a dedicated savings account, gradually accumulating a reserve that can be tapped into during times of need.
Monitor Cash Flow Closely
Keep a close eye on your cash flow by consistently monitoring incoming and outgoing funds. This helps to identify financial red flags early on, such as cash flow issues, decreasing profitability, or unforeseen expenses, so you can combat these issues before they get out of control. To optimize cash flow, implement strategies to accelerate receivables and delay payables where possible. Additionally, consider leveraging digital tools to streamline invoicing, payment processing, and financial reporting.
Diversify Revenue Streams
Relying heavily on a single revenue source can leave your business vulnerable to market fluctuations and industry disruptions. Diversifying your revenue streams can help mitigate this risk and create a more resilient business model. Explore opportunities to expand your product or service offerings, target new customer segments, or expand to adjacent markets to diversify your income sources.
Negotiate Favorable Term
Effective negotiation can result in significant cost savings and improve your bottom line. Whether it’s negotiating with suppliers, contractors, or landlords, don’t hesitate to advocate for your business’s interests. By securing favorable terms and agreements, you can reduce expenses and enhance profitability.
Invest in Technology
From accounting software to customer relationship management (CRM) systems, investing in technology tools can help automate repetitive tasks, improve decision-making, and empower your team to work more effectively. Invest in technologies that will address your business’s specific needs and produce tangible benefits.
Seek Professional Guidance
Don’t hesitate to seek guidance from experts like accountants, financial advisors, and business consultants. These professionals can offer valuable insights, expertise, and strategic advice tailored to your specific business needs. Whether you’re seeking guidance to optimize tax strategies, create a growth plan, or navigate complex financial regulations, their assistance can be instrumental in helping to avoid pitfalls and ultimately achieve financial success.
by Jean Miller | Accounting News, News, Newsletter, Small Business
Small businesses are not immune to the effects of broader economic shifts. As highlighted by the pandemic, major global and domestic events have the potential to profoundly influence businesses across the board, regardless of size. In 2024, larger economic conditions and fluctuations could have a significant impact on small businesses. Read on as we delve into four hurdles that have the potential to affect small businesses this year.
Economic Uncertainty
The previous year presented challenging economic hurdles for businesses of all sizes. Surging inflation significantly affected businesses, leading to spikes in overhead expenses and interest rates. Although recent data from the Office for National Statistics (ONS) indicates a gradual decline in monthly inflation rates, they still surpass the government’s targeted 2%. Small businesses will likely feel a greater impact compared to more established businesses, given their absence of cost-saving benefits from economies of scale, which typically provide some breathing room during challenging economic climates.
Political Tensions
Election years can introduce some unpredictability and prompt a certain level of economic insecurity. Businesses and investors may hesitate to make significant decisions until they have clarity on the direction of future policies, which can lead to a slowdown in economic activity. Additionally, campaigns and debates that focus on economic issues can contribute to market volatility.
International Instability
Ongoing geopolitical pressures, such as the conflict in Ukraine and the hostilities between Israel and Hamas, can affect international trade and the overall U.S. economy. These tensions, as well as others around the globe, have the potential to spark trade conflicts and disrupt the international movement of goods and services, potentially resulting in shortages of raw materials and production delays. This, in turn, can escalate import and export expenses, contributing to overall price hikes.
Is a Recession Happening?
This has been the question posed by businesses and consumers since late 2022. A lingering uncertain economic forecast could make companies hesitant to invest in bigger expenses, such as new research, equipment, or real estate. While the Federal Reserve’s incremental interest rate hikes have helped to suppress inflation, whether or not we’ll come out of this economic rollercoaster with a “soft landing” is still a question mark. Small businesses should still be preparing for the possibility of a recession this year.
by Daniel Kittell | Accounting News, News, Newsletter, Small Business
The impact of inflation on small businesses is typically significant, often squeezing profit margins and jeopardizing long-term sustainability. Amid this challenge, small businesses are finding innovative ways to navigate these turbulent economic waters. In this article we explore four strategies that are proving instrumental in helping small businesses stay afloat.
Tap into Savings Reserves
One of the primary strategies small businesses are using to endure inflation is tapping into their savings reserves. By building a financial safety net during calmer economic periods, businesses create a cushion that allows them to maintain operational stability, cover increased costs, and avoid making knee-jerk decisions that could have long-term consequences.
However, this move isn’t one to make lightly. Business owners should first assess the severity and duration of inflationary trends before dipping into cash reserves. It’s a delicate balance between preserving the business’s financial health and addressing immediate challenges. Additionally, businesses need to come up with a strong plan for replenishing these reserves once economic conditions balance out.
Raise Prices
According to a recent poll released by the accounts payable software Melio, half of the businesses polled increased their prices to offset the rising costs of labor or supplies. Many of these businesses reported a price increase of 7% in the last six months. To implement a price increase strategy effectively, businesses should conduct thorough market research and competitor analysis. Understanding how similar products or services are priced in the market can provide insights into the best pricing strategy.
Reduce Production of Goods or Services
Inflation often leads to increased costs of raw materials, labor, and other operational expenses. Because of this, small businesses may choose to reduce the production of goods or services in an effort to maintain profitability. It might seem counterintuitive, but it can be a strategic move to uphold quality and protect the business’s reputation.
Cutting back on production allows businesses to focus on delivering a limited but high-quality offering. This can be particularly effective for businesses with a niche market or those that underscore craftsmanship and exclusivity. By maintaining a respected and high-quality reputation, businesses can weather the storm of inflation without compromising the long-term sustainability of their operations.
Increase Online Presence
A strong online presence will help small businesses mitigate the impact of inflation by opening new avenues for sales, reducing dependence on local economic conditions, and providing opportunities for reaching an international customer base. An effective online strategy – through e-commerce platforms, digital marketing, and social media engagement – allows businesses to connect with a broader audience and provides valuable insights for adapting to changing market conditions.
The four strategies discussed above are all essential components of a comprehensive approach to navigating economic uncertainty. By carefully implementing these strategies, business owners can position their businesses not only to survive but to thrive in the face of inflationary pressures.
by Stephen Reed | Accounting News, Business Growth, News
Whether anticipated or unexpected, small businesses in every industry face a lot of challenges. Both veteran and new businesses need to be prepared, flexible, and adaptable in order to succeed. Here are the most significant business challenges in 2023.
Economic Uncertainty
The economy has been wavering for some time now, and it appears that we’re on course for the same in 2023. This makes long-term planning a difficult task. When the economy is more balanced, business owners are equipped to make better investments and more informed decisions. However, with rising inflation, as we have now, small businesses face the possibility of stalled growth. It will be imperative for small businesses to budget costs and manage their operations efficiently.
Inflation and Rising Costs
Small businesses are not immune to the effects of inflation. Increasing costs of raw materials, shipping, and energy can all influence the profitability of a small business. Whereas larger companies might be able to pass these costs onto customers, small businesses typically don’t have the pricing power to do so. To attend to this challenge, small businesses may need to reduce costs through more efficient operations, renegotiating contracts with suppliers, or exploring new revenue streams.
Hiring and Retaining Labor
Most industries have experienced a labor shortage since the onset of the Covid-19 pandemic. The inability to find and retain qualified employees could impact the ability of small businesses to deliver goods and services or focus efforts on growth. Small business owners should think about offering more competitive wages and benefits, improving working conditions, and investing in automation to help reduce the work load of employees.
Competition
Competition isn’t a new challenge to small businesses, but the pandemic accelerated the shift toward e-commerce and digital channels. It’s now up to small businesses to find a way to stand out from the crowd in order to retain existing clients and attract new business. They might want to consider investing in digital marketing and advertising, improving their website and social media outreach, and offering products or services that set them apart from competitors.
Funding
Securing funding will be difficult this year as lending firms await to see what the economy does. On the positive side, this is an opportunity for small businesses to stand out among the competition. Business leaders will need to come up with creative pitches that prove the value their company offers.
