Of the countless obstacles small businesses face, financial challenges tend to be the largest and most complicated. Business finances are complex and ever-changing. A company with a strong financial situation operates and grows smoothly, while the business with too many obstacles will struggle to stay afloat. The key to protecting your business’ financial health is to make sure you are fully aware of the top small business financial challenges. The more you understand, the better you can overcome and manage these pain points.
1. Lack of Cash Flow
Year after year, small business owners list cash flow as their biggest challenge. A recently released global study by Intuit QuickBooks, the State of Small Business Cash Flow, discovered that 69 percent of small business owners lose sleep at night over cash flow concerns. Unfortunately, cash flow problems do not decline as your business grows – they are a constant. Without sufficient cash on hand, your business will find it difficult to operate smoothly and grow. To make positive cash flow a top priority, you will need to regularly analyze and manage your cash flow. It is also important to find flexible funding options before your business finds itself in a tight financial situation.
2. Follow a Budget
According to a new survey from Clutch, close to two thirds (61%) of small businesses did not have an official budget last year. Of the businesses that did follow a budget, 50 percent reported that they successfully stuck with their Q1 and Q2 targets, while 11 percent came in under budget. Having a budget is absolutely essential to running a smooth operation. By creating a budget and routinely reviewing its results (versus just projections), you can keep a close eye on your expenses and make timely changes as needed. The key to sticking to your budget is to create one that is realistic for your business’ goals and growth potential.
3. Managing Unforeseen Expenses
Unfortunately, unforeseen expenses are a part of life for small business owners. Thirty-five percent of respondents to the Clutch survey said unexpected costs were their biggest financial strain. These expenses can take many forms, including fees for permits and licenses, unanticipated tax liabilities, insurance costs, professional fees, lost or stolen inventory, equipment repair and maintenance costs, credit card fees, paying for employee training, changes to the U.S. tax code, etc. You can prepare your business for unforeseen expenses by building a buffer into your budget to manage surprises and by securing financing that gives you quick access to capital when you need it most.
4. Not Receiving Payments on Time
Dealing with late payments is not an unusual problem for small business owners. In fact, one-third of all small business owners in the U.S. estimate their companies have over $20,000 in outstanding receivables; the average outstanding receivables for U.S. small businesses is $53,399. When your customers take 30, 60, or even 90 days to pay your invoice, a serious cash flow gap is created that strains your company’s finances. One very effective way you can speed up the process is to partner with an invoice factoring company. In selling your unpaid invoices to a factor, you can streamline the collections process and receive a quick advance of funds. The factoring company takes on the responsibility of collecting payment from your customer for you, while you conduct business as usual.
5. Limited Access to Funding
Finding access to funding for growth is a challenge new and long-established businesses share. For your business to grow, you will need a healthy amount of capital to invest in bigger projects. Securing additional working capital also provides the flexibility you need to focus on other long-term growth efforts, like hiring more workers and opening a new location. Traditional funding options involve a lengthy, complicated approval process, and they are not always available to small business owners. As a result, more and more small businesses are turning to alternative lenders. Cash solutions like invoice factoring allow you to access funding when business demands become timely; such as, when you need to fulfill a large or multiple orders or hire more staff for a new project.
Secure Fast Funding to Overcome Financial Challenges
All in all, overcoming small business financial challenges comes down to knowledge and preparation. That is why it is so important to lay out a plan (a budget) to create accountability and to help you make smarter financial decisions; this will also help you determine when and how much business funding you need to expand. Once you know what you need extra capital for, you can then research your options and decide which cash solution will help you grow your business.
Keep in mind, the funding option you choose should quickly provide the cash you need to manage financial challenges, without adding a burden of debt. Invoice factoring, for example, is an alternative financial tool that turns your business’ unpaid invoices into immediate working capital. The process involves your business selling its invoices to a factoring company, at a small discount, in exchange for a quick advance of funds. You can have cash on hand in as little as 24 hours, there is no debt to repay and you secure unlimited funding potential.
Ultimately, you gain access to the working capital you need to hire the right team, cover day-to-day expenses, take on new projects and fund growth. Would you like to learn more about how invoice factoring works, and how it can provide the quick capital your business needs to grow? Contact our cash flow experts at Bold Business Capital to get started.
Sources:
https://www.debt.org/small-business/sba/
https://clutch.co/accounting/resources/why-small-businesses-need-budgets
