Common Financial Challenges for Small Businesses
by Arina Smith Small Business 09 January 2018
Running a small business is rarely easy. With so much responsibility resting on your shoulders and so many issues to deal with on a daily basis, it’s all too easy to believe that the problems are unique to your enterprise when, in reality, it is likely they are being shared by the majority of your competition.
The major benefit this brings is that you can directly learn from the actions taken by other entrepreneurs and ensure you don’t repeat the same mistakes. Here are some of the key financial challenges to be on the lookout for.
When your business reaches the point where you have five to ten employees on your roster, increasing your profits becomes a significant challenge. This is usually because you can no longer undercut the cost of the competition – who may be operating with bigger economies of scale – so the only way to remain competitive is to innovate and optimize constantly.
The benefit of being in this position is that it is far easier for a small company to shift and adapt their operations in response to changing market conditions that it is for a larger conglomerate to do so. The key here is to ensure you always hire the best and brightest people you possibly can. Although they may cost more in the short term, they will prove to be a worthwhile investment during such times.
Once you start employing people, you’ll need to set up a payroll system and this, in turn, means you will begin withholding taxes. During times of financial difficulty, there may be a great temptation to dip into such funds and use them to keep the company afloat.
Avoid this temptation at all costs. The IRS is extremely ruthless when it comes to pursuing such unpaid taxes. Ensure you hire a reputable firm such as My Tax Lawyer to advise you on the best way to proceed if you find yourself in danger of being late with such payments.
Overreliance on the founder
What would happen if you got hit by a car? Would your business still be able to function without you? If you are unable to let go of certain aspects of your business and delegate duties to others, your business may not be able to survive your absence. Putting yourself in such a position not only risks your own welfare but that of your staff.
Managing cash flow
Boosting cash flow usually sits at the top of the list of concerns for most companies, especially small businesses. When clients stall their own payments, it can have a knock-on effect on your own business. Should one or two unexpected outgoings arriving at this time, it can leave you extremely short of cash.
The key here is to find the right cash flow management system to suit your business. There are many on the market but resist the temptation to simply choose the cheapest system or the one that is easiest to use. This is a good time to find out what the competition and the companies you aspire to compete with are using. Bear in mind that if you want your company to grow, you should choose a system that makes this easy, so you don’t find yourself having to purchase a brand-new system from scratch a few years down the line.