Running a small business in this economy is not everyone’s forte. In fact, almost 20% of the companies that have less than 500 employees don’t make it past the one-year mark. And nearly 30% are barely operating when they near the second year mark. And by the five-year mark, almost half the small companies shut down due to several crises.
However, such gruesome statistics are not enough to stop people from moving towards their entrepreneurial passions and dreams, as now more than ever, more small businesses are launching and operating in the world.
The primary reason small businesses fail in this economy is due to lack of finances. In simple words, they don’t have enough money flowing in to cover their expenses and pay their employees. For this reason, we will discuss some of the top financial challenges that small businesses face.
Taxes are an administrative and financial burden when it comes to small businesses. It impacts their cash flow and reserves their ability to invest in the employees or the company. For this reason, federal taxes, payroll taxes, and income taxes have become a significant burden on small businesses and pose a severe financial challenge. Moreover, tax-related problems also arise more in small businesses and cause significant challenges. They reduce the company’s profits, and small businesses owners have to invest double to pay wages and expand the business.
For this reason, they also miss many valuable business opportunities which otherwise would have helped them grow their business. Hence, even as a small business, you should consider hiring a tax lawyer. In addition, due to the digitalization of educational programs such as tax LLM online, many competitive tax lawyers can work in the field. They work for companies or individual clients to ensure that their taxes are in order. Therefore, hiring a tax lawyer for your small business can help reduce the amount of money that the company pays as tax and improve profits.
2. Limited or inconsistent cash flow
Managing cash flow is a significant issue for small businesses; whether it is accumulating enough money to invest in its growth and pay the bills or even invoice, liquidity is a major ongoing issue. This is a constant issue, regardless of the state of the economy in the country. Because it doesn’t really matter how many assets you possess, you have no running business without any cash flow. Besides covering recurring costs such as rent, bills, and payroll, you also have to pay vendor invoices, taxes, supplies, etc. All of these aspects can cause significant financial issues, which can cause problems for your business.
Some methods of improving your cash flow include leasing your equipment instead of buying it, improving your inventory, increasing prices, expanding sales, etc.
3. Maintaining a budget
Another major problem that businesses face is budgeting. Budgeting is the key to running your operations smoothly. However, small business owners often tend to get a little happy with their money when spending on projects and investing in the company. Therefore, when the time comes to pay the employees, buy products, or pay the bills, they have little money left.
By creating and maintaining a budget, you can review the results of your projects. Moreover, keeping a close eye on your budget helps you understand when to spend more or cut back. Therefore, create a realistic budget according to your business goals and average profits. Have a look at your sources of income and get an idea about how much cash is flowing into the company. Then, distribute the expenses between fixed expenses and decide what you want to do with the rest later.
Marketing in this day and age became a little easier and more accessible for small businesses when social media platforms became the primary channel for marketing. However, advertising has become one of the top challenges small businesses face. The reason is that their competitors are large companies that are constantly investing in different initiatives to reach their target audience and advertise everywhere. In such high competition, small businesses often have a hard time getting their word out to their target audience. As a result, they are left behind and receive little return on investment (ROI) in marketing.
Thus, you have to get creative to maintain competition in this tough situation without completely draining your finances. Hence, more small businesses are focusing on SEO content marketing than traditional advertising techniques. SEO content marketing helps small businesses reach their target audience and attract clients easily.
5. Lack of capital
No financial burden is bigger than lack of capital. Of course, capital is what keeps your business running. But only paying for all the expenses with the bare minimum just to keep on operating isn’t helping the company grow. If you want to grow your company, you will need to invest in more extensive projects, which Hence, this issue is up to par with cash flow management issues. Inherently need a hefty amount of capital. Hence, this issue is up to par with cash flow management issues.
For this reason, you must establish a proper plan to improve your company’s credit score to mark your success. In addition, you have to be clear about how you plan to use your finances and how you plan to return the loans if you take any. Only this way will you be able to secure more capital from banks and other sources.
No matter how much you plan and budget, there will be times when a crisis happens and sets you back. However, you will need critical thinking skills and creativity to overcome the problem like you can apply for an MCA loan to have enough capital. Moreover, you must also learn to prioritize and cut back whenever necessary if you aim to grow, not just stay afloat as a business.