Small Business

4 financial hurdles small business owners face (and how to get over them)

By: Maria Tanski

Being a business owner is no easy task. You need to figure out how to fund your startup, efficiently manage your cash flow, and keep up with expenses. 

With so many responsibilities, it can be difficult to keep your finances in order. And like most business owners, you will probably face some financial challenges on your entrepreneurial journey.

To overcome these challenges, you have to know what hurdles to expect and how to avoid and overcome them. 

4 financial hurdles small business owners face

Financial mistakes and roadblocks are inevitable in business. Even the most seasoned business owners face financial challenges. 

Here are four financial hurdles that you might need to jump over, and strategies for doing it gracefully. 

1. Unforeseen business expenses

As an individual, you’re used to paying for unpredictable expenses, like costs for a flat tire or your basement flooding. As a business owner, you must have the same mindset for expenses. When it comes to business expenses, expect the unexpected.

Some unforeseeable costs your business may have to pay for include:

  • Insurance 
  • Professional fees (e.g., small business lawyer)
  • Maintaining and replacing equipment
  • Employee benefits
  • Business credit card fees
  • Payroll costs
  • Taxes
  • Permits and business licenses

Unfortunately, business expenses are a major part of expanding your company. But just like you do in your personal life, you can plan for the worst. 

Your solution? Budgeting, budgeting, budgeting. Having a budget can make or break your business’s success. If you want to avoid any surprises when it comes to business finances, create a budget. 

After you establish your budget, be sure to keep yourself accountable. Did you go over budget this month? If so, what adjustments can you make in your spending habits? Revisit your budget from time to time to make changes as your business grows. 

You might have heard of an emergency fund before. Many people use these funds to cover unexpected expenses. Consider creating an emergency fund for your business. That way, you know you’re covered if the unpredictable occurs. 

2. Lack of startup capital

Unless you have a money tree in your backyard, you’re probably going to need a little assistance to help fund your venture. In fact, the average small business requires about $10,000 worth of startup capital. And, a whopping 77% of small businesses rely on personal savings for funding. 

When starting out, most small business owners are on the hunt for capital. But what most business owners don’t realize is that raising capital can be difficult. If you don’t know where to look or who to go to for capital, you could find your startup sinking before it sets sail. 

The key to overcoming lack of capital? Lenders and investors.

If you want people to invest in your business, you have to let them get to know you, your ideas, and your company. 

Look into different investors, such as venture capitalists or angel investors. Once you narrow down your investors, create a top-notch pitch to convince them that your business is worth it. 

When you’re forming relationships and trying to raise capital, be sure to also keep your options open. There’s a wide variety of different options available for small business loans. Some of your loan options include:

  • Personal loans
  • Invoice financing
  • Bank loans
  • Alternative lenders
  • SBA loans

3. Poor cash flow management

According to one source, 33% of small business owners say their top financial challenge is a lack of cash flow. 

If you’re a business owner, it’s no secret that cash is king. And, your business’s cash flow should be a top priority. After all, it is the money that’s helping to keep your doors open. 

If you want to avoid business failure and keep your finances in tip-top shape, you need to learn how to manage your cash flow. 

Poor cash flow management can obviously spell trouble for your startup. Having a negative cash flow could mean your business is:

  • Losing money
  • Poorly managing income and expenses
  • Running low on funds

What can you do to keep up with your cash flow?

For starters, you can create a cash flow forecast. Cash flow projections allow you to estimate how much money you expect to flow in and out of your business in the future. Then, you can use your projection to set goals for your business. 

To calculate projected cash flow, gather historical accounting data from your records. Organize your data in a spreadsheet to easily record, display, and track projections. 

Compare your projected cash flow statement to your actual cash flow. Is it close to what you predicted? If it’s not similar, you might need to make some adjustments to your projection, sales strategies, or spending habits. 

Keep in mind that your cash flow projection is not always set in stone. Factors, such as the economy and customers’ income, can impact cash flow estimates. 

4. Customers failing to pay on time

Regardless of whether you’re new to the industry or have been in business for years, customers don’t always pay on time. A major financial hassle for small business owners is getting customers to promptly pay you.  

Some of you might be thinking, What’s the big deal if my customers don’t pay me on time? Late customer payments can quickly add up, especially for smaller businesses just starting out. 

As a business owner, you need to pay off your bills, too. But, you can’t do that if you’re waiting around for customers to pay you. 

Late payments can put a huge dent in your cash flow, hinder your ability to make payroll, and rack up your debts. Not to mention, dealing with them is incredibly time-consuming. 

So, how do leap over this financial hurdle?

Well, there are many strategies you can take advantage of to ensure you are receiving cash from your customers. 

An effective approach to prevent late payments is to simplify your customers’ payment process and experience. Customers want (and need) an easy way to pay their bills. If they run into too many obstacles, they won’t be able to pay you.

If you want to streamline customers’ payment processes, consider automating a bit. There are plenty of payment platforms out there that allow you to set up payment reminders, track customer payments, and more. 

Another way to make sure you receive your payments on time is to add on late payment fees or interest when a customer misses a payment. If customers are aware of fees and interest rates, they will be more likely to pay you in a timely manner to avoid shelling out extra cash.  

Leaping over the financial hurdles

At some point, you will likely come face-to-face with one of the financial hurdles from above. Instead of letting them stop you in your tracks, overcome these challenges. 

You can overcome financial hurdles using the strategies below:

  • Create a budget
  • Utilize an emergency fund
  • Organize important financial documents
  • Streamline your accounting process
  • Get professional advice
  • Automate business processes
  • Shop around to reduce expense costs
  • Create a cash flow projection

As you can tell, there are many ways you can protect your business financial issues and avoid barricades leading to success. 

The bottom line is this: you must have a plan when it comes to your company’s finances. Otherwise, you will find yourself hitting hurdle after hurdle until you and your business can’t take it anymore. 

If you want your business to succeed financially, plan as much as possible. Do all you can for your business beforehand to prevent financial challenges (or disasters) later on. 

The smallest financial effort can make an impact. Create that business budget. Review your expenses. Research ways to cut down on costs. Trust me, your bank account will thank you later.

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About The Author

Maria Tanski

Maria Tanski is a content writer at Patriot Software, LLC. Patriot Software offers online accounting software and payroll software for small business owners. At Patriot, Maria writes about accounting, payroll, and other small business topics.

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