Running a small business is a bit like juggling – there’s always something to keep in the air, and it only takes one misstep for everything to come crashing down. While the thrill of delivering quality products, expanding your brand, and making customers happy can be exhilarating, one simple truth stands out: cash is king.  […]

Running a small business is a bit like juggling – there’s always something to keep in the air, and it only takes one misstep for everything to come crashing down. While the thrill of delivering quality products, expanding your brand, and making customers happy can be exhilarating, one simple truth stands out: cash is king. 

Understanding how money moves in and out of your business is crucial to keeping everything running smoothly. Yet, cash flow issues are among the most common headaches for small business owners. In fact, according to the SMBA, over one-third of small businesses cited “lack of capital” as the primary reason they had to close. That’s why it’s so important to plan ahead and ensure that your business always has the funds it needs.

Proper cash flow management involves anticipating both the money coming in and the money going out. To do this effectively, you need to know your current financial situation inside and out, including your payment processes and debts. Additionally, having a plan for handling any unexpected disruptions is key to avoiding potential cash flow crises.

Fortunately, most cash flow issues stem from a few common causes. By understanding these, you’ll be better equipped to prevent them or at least manage them more effectively when they arise.

Creating a Budget

Budgeting is essential for gaining control over your business expenses. However, in 2021, more than half of small businesses didn’t have a formally documented budget. If you’re looking to create one, start by setting specific and realistic financial goals. Overestimating your expenses – assuming you’ll pay more this year than last – can give you a buffer and help you avoid surprises.

While some may see budgeting as restrictive, having a budget actually provides a financial focus. It also gives you a benchmark to measure against when making spending decisions throughout the year. Remember, a budget is a living document, not set in stone. As your business grows or as external factors like inflation change the cost of goods, revisit and adjust your budget accordingly.

Building an Emergency Fund

Just like in personal finance, businesses need to be prepared for the unexpected. Unfortunately, many small businesses aren’t as prepared as they should be. Surveys show that 17% of business owners would have to close if they experienced two months of declining revenue. Additionally, 25% of businesses don’t reopen after a disaster.

Having an emergency fund can make a huge difference. This fund can help cover unexpected expenses, such as a surprise tax bill, a sudden increase in supply costs, or repairs after a disaster. To start building your emergency fund, first determine how much you need to cover your immediate expenses for one month. Then, decide how many months’ worth of expenses you want to save. Even if you can only set aside a small amount each month, it’s important to start. Set up an automatic transfer so you never forget, and make sure the money goes into an account designated solely for emergencies.

Managing Late Customer Payments

Customers are the heart of any small business, but when they make late payments, it can cause serious cash flow problems. Unfortunately, late payments are all too common, with 87% of businesses reporting that they typically get paid after their invoice due date. 

To help avoid this issue, consider making a few small changes. Send invoices promptly, offer multiple payment options, and be clear about payment terms and expectations upfront and on every invoice. You might also want to ask for a deposit or full payment before starting work, and consider charging a late fee to encourage timely payments.

Planning for Growth

Growth is generally good news for a small business, but if it happens too quickly or without a plan, it can strain your finances. Many business owners plan to expand their current location, service, or website, or even open additional locations. But growth often comes with increased costs – more employees, better equipment, larger office space, or higher shipping expenses.

To prepare for growth, create a plan for the expenses that will come with it. This might involve securing financing through a bank, applying for a small business loan, or using a business credit card for smaller purchases. Each option has its own pros and cons, so it’s important to research and plan ahead.

Paying Yourself a Salary

When cash is tight, it’s tempting to skip paying yourself to keep more money in the business. In fact, 26% of small business owners don’t pay themselves a salary. However, this can lead to more stress and distraction, negatively impacting both you and your business. Moreover, not paying yourself can cause issues come tax time.

Instead of going without, research what a fair salary for your role should be. Consultants, industry trade groups, and entrepreneurs in your field can provide guidance. One survey found that 46% of founders pay themselves less than $100,000 annually, but the key is to find a balance that reflects your business’s financial health and your personal needs.

Cash flow problems are a significant source of stress for small businesses, but they’re not inevitable. By understanding the common causes and taking proactive steps, you can keep your cash flow steady and focus on what really matters – growing your business.

As a small business owner, it’s easy to get caught up in the day-to-day grind. From managing customer requests to handling inventory, there’s always something demanding your attention. But while it’s important to keep things running smoothly, focusing too much on the daily tasks can cause you to lose sight of the bigger picture. That’s […]

As a small business owner, it’s easy to get caught up in the day-to-day grind. From managing customer requests to handling inventory, there’s always something demanding your attention. But while it’s important to keep things running smoothly, focusing too much on the daily tasks can cause you to lose sight of the bigger picture. That’s why it’s essential to spend time working on your business, not just in it.

What Does It Mean to Work On Your Business?

We know you’ve heard that saying before, but what does that mean exactly? It means investing time and energy into building a business model and strategy, not just completing day-to-day tasks. After all, a successful enterprise needs both short-term goals (hitting sales targets) and long-term objectives (developing new products/services or exploring new markets).

But, this is particularly challenging for small business owners to accommodate. Without sprawling administrative teams, these leaders often have no choice but to put out fires and focus on the immediate rather than the important. With limited resources, escaping the day-to-day tasks and taking a more strategic view can be almost impossible: there is often no one else to take on the immediate tasks.

According to Rachel Siegel, founder of Go Figure Accounting, working in your business means handling the immediate tasks that keep your business afloat—processing orders, responding to emails, dealing with customer service issues, etc. These tasks are crucial, but they’re also reactive. You’re putting out fires as they arise rather than planning how to avoid them in the first place.

“You need to have systems in place that will allow you to step away from the day-to-day details and focus on the long-term,” she says. “This could involve delegating tasks to other staff members, outsourcing whenever possible, or utilizing software solutions that automate low-level tasks.”

Indeed, working on your business is about taking a step back to look at the broader picture. It involves strategic planning, setting long-term goals, and thinking about how to grow and improve your business.

This might include tasks like:

Developing a marketing strategy: Instead of just running ads as needed, take time to think about your brand, your target audience, and how to reach them effectively.

Streamlining processes: Look for ways to make your business more efficient. Are there tasks that could be automated? Are there better tools you could use?

Building your team: Consider your staffing needs not just for today, but for the future. What roles will you need to fill as your business grows? How can you develop your current employees’ skills to meet those needs?

Financial planning: Rather than just keeping track of your expenses and income, work on a financial plan that helps you understand where you want to be in five years—and how you’re going to get there.

Why It Matters

When you’re only working in your business, you’re stuck in a cycle of reaction. This can make it hard to see opportunities for growth or to pivot when the market changes. Working on your business helps you break free from that cycle. It allows you to be proactive, to plan for the future, and to build a business that isn’t just surviving, but thriving.

How to Get Started

Start by setting aside time each week to focus on strategic tasks. Even an hour or two can make a big difference. Use this time to assess where your business stands, identify areas for improvement, and set goals for the future. It might feel strange at first to step away from the daily hustle, but in the long run, this is the kind of work that will take your business to the next level.

Remember, your business should work for you, not the other way around. By investing time in working on your business, you’re setting yourself up for success and creating a foundation for sustainable growth.