The Top 3 Financial Challenges Small Businesses Face

There are many amazing professionals in the world with expertise in their fields and products or services customers need. Yet, for many of these individuals, their expertise is centered on their field or industry; not on operating a business.

It’s this issue that leads to the downfall of many would-be great organizations, particularly surrounding the financial side of business ownership.

Here are three common financial challenges small businesses face, and how to overcome them.

Managing Cash Flow

Cash flow tends to be the biggest struggle for small businesses. Several factors impact cash flow. These gaps lead business owners to explore lending solutions like commercial vehicle title loans at 5 Star Car Title Loans to cover the gaps between when customers pay and when bills are due.

One of the main disruptors is inefficient billing practices. Small businesses with limited resources may put invoicing on the backburner during peak periods. A few days here and there add up, leading to poor cash flow. 

Companies can overcome this issue by putting consistent invoicing tools in place. Using automated billing platforms or batching invoice creation can help small businesses stay on top of this critical task.

Another pain point for many small businesses is managing accounts receivable. Setting aside dedicated time or outsourcing this task will ensure late payments are tracked down and processed accordingly. Adding early payment incentives and late payment fees can also help.

Contingency Planning

No event better highlighted the need for contingency planning than the global pandemic. Many small businesses found themselves forced to shut down or reframe their entire workflow practically overnight. Businesses with emergency savings funds and the ability to adapt fared far better than the almost 100,000 businesses that closed permanently in 2020 alone.  

Contingency plans outline all the risks your business could face and their impact. These issues could be anything from short staffing to another government shutdown. Having details mapped out helps everyone stay calm and focused when disruptions occur.

Creating an emergency savings fund for your business is also a proactive step for improving your financial longevity. Set aside a percentage of your earnings for this cause.

The Growth-capital Paradox

Growth in a business seems like a positive thing — and it is — but it adds complexity. Rapid growth can lead to expense requirements with little time to vet and plan for them. As a result, business owners find themselves making more money and spending more money, rather than becoming more profitable.

In the other scenario, companies grow to the point where they can’t take on more customers. Yet, they don’t have the capital to invest in expansion. 

During periods of rapid growth, it’s crucial to take a step back and look at the bigger picture. Communication is key during this time. Rather than spending to hire and implement temporary systems, pause and let your vendors and customers know what’s happening. Then, clarify the top priority investments and spend wisely.

Creating a growth plan can help in both scenarios. Putting together a well-organized growth plan with financials is foundational for securing capital from banks and investors. Alternatively, hosting presales and crowdfunding can help you bootstrap your organization to success.

In summation, organization and planning are pain points for many businesses; but they’re also the solution to financial woes.

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