How Financial Problems Cause Small Businesses to Fail
Several typical financial struggles can fall upon proprietors of small businesses, all of which could be prevented with adequate planning and the appropriate financial instruments. As you start a new chapter in your life by having a small business, this article will give you an idea of some common financial problems that you should be on the lookout for.
The 7 Most Common Financial Problems That Your Small Business Can Face
Small businesses may face a lot of financial problems and business challenges if not planned well. However, up next are the most common financial problems of starting a business, so if you are a business, or are thinking about starting your own, then you should stay alert for the following:
1. Poor Cash Flow Management
Poor cash flow management is one of the most common small business challenges. While running a business has some risks, it is possible to better prepare for the future by keeping a careful eye on your cash flow. There are many different ways to keep track of your company’s cash flow. If you monitor your cash flow, you’ll be able to stay on top of obligations like paying staff and vendors. Many small-business owners are concerned about rapidly accruing debt.
2. Mixing Business and Personal Accounts
Many small business owners’ personal and corporate accounts can be difficult to understand. Cash flow management and tax difficulties might arise if business and personal accounts are used for activities or monies related to the firm. You also need to avoid using your business credit or debit card for personal purchases if you want great financial management.
3. Incurring in Too Much Debt
Taking out a credit card in the hopes of making money in the future is a normal business practice. Similarly, you may wish to make preparations for seasonal events by increasing your marketing or inventory levels. But by purchasing goods and services with no promise of return, you are putting your business at risk. Be careful about acquiring too much debt with little to no point to it.
4. Operating Without a Set Budget
Investing big sums of money in your business could be risky. Avoid making major purchases until you have calculated the possible return on your investment if you wish to reinvest in your company. The purchase of an espresso machine to offer consumers coffee may increase earnings, but it will also temporarily tie up your cash. Be careful not to overspend on unneeded beginning costs to regulate your cash flow better. You’ll be able to increase your reinvestment in your business as it expands.
5. Insufficient Marketing and Advertising
You’re handing customers over to your competitors if you don’t keep bringing in new ones. Companies with growth and profitability aspirations, on the other hand, need a steady stream of new customers to help them accomplish their objectives.
Marketing tactics that attract, engage, and keep customers must be employed by business owners in order to secure these clients. This is an area where companies can really shine if they get it properly. With the limited resources in small businesses, branding, business model and creating awareness can be hard. You will have to differentiate your brand to propel it forward.
6. Failing to Raise Capital
In the last five years, one out of every five small business owners who asked for funding was turned down—according to Nav’s Small Business American Dream Gap Report. Additionally, 82% of all business owners surveyed had no idea how to interpret their organizations’ credit scores. According to the report, those with a better awareness of their company credit scores are 41% more likely to be approved for a loan.
7. Being Unprepared For Emergency Expenses
One of the most common mistakes is not having enough money in the emergency fund or buffer space. You can safeguard yourself against unexpected expenses by setting away a specific amount of liquid cash for emergencies. According to a J.P. Morgan Chase research from 2016, small firms have roughly 27 days of cash on hand, and then they run out in case of emergencies.
8. Not Being Tax Compliant & Getting Audited
When it comes to the end of the fiscal year, planning ahead can save you money and keep you from being surprised by a tax bill. According to the IRS, small businesses make various tax mistakes, including underpaying estimated taxes, failing to deposit employment taxes, paying late, and failing to separate business and personal spending.
It’s challenging enough to handle cash without adding to the difficulty of overpaying the IRS. Despite this, up to 85% of small businesses overpay federal income taxes each year. Others underpay and get up in trouble with the IRS or other government agencies. Working through both circumstances takes time, effort, and money.
Payment isn’t one of the most pressing challenges that businesses confront when it comes to federal taxes. This disproportionately burdens small businesses compared to their larger competitors. According to the IRS, businesses with less than $1 million in revenue are responsible for approximately two-thirds of all compliance costs.
9. Managing Payroll Poorly
Payroll is the largest expense for most small enterprises and non-profits that provide services, accounting for up to 70% to 80% of total expenses. The most significant financial challenge for a small business owner is determining how to best utilize labor costs. How can you eliminate time leaks and boost employee productivity? Automated job costing is the answer.
When you use job costing, you may see profit and loss by client, job, service, and team. When you look at the profitability margins for each, you can determine which ones aren’t functioning well. That’s when you’ll be able to take over managerial accounting.
10. High Employee Turnover
One of the biggest small business challenges is making sure employees are motivated to work hard in service of the business. Because small businesses generally have to compete with larger firms that normally offer a higher wage and a more comprehensive benefits package, attracting and maintaining competent personnel at an affordable cost has become more difficult than ever before as a result of the pandemic.
Retention is another issue. Onboarding new personnel can be time and money-consuming. Bringing on an employee may cost a company up to $4,000, which can be difficult for a small business to handle, so ensuring they’re a good fit for your company before recruiting is crucial. Employees at small businesses are also more inclined to look for prospects for growth elsewhere if those opportunities aren’t available in their current employment.
How Quick Capital Funding Can Help
We’ve teamed up with top investors to develop a comprehensive answer to all small business finance problems. We use cutting-edge technology to assess your company’s success rather than your personal credit.
Unlike the Small Business Administration (SBA), we devised a simple and rapid method of borrowing funds for business success. We’ll go through hoops to get your company the money it needs to expand right now. If you need help, call our team at Quick Capital Funding today!
What is the biggest challenge facing small businesses?
Simply said, the most difficult task for small businesses is to maintain a healthy cash flow. As well as customer acquisition.
What are the signs of a failing business?
Some signs that indicate a potential problem with finances are:
- Low amounts of profit.
- A decrease in the amount of revenue generated an increase in the amount of interest paid.
- Accounting concerns for businesses
How can a business prevent having financial problems?
Budgeting should be the first order of business for owners of small businesses, as well as:
- Figuring out how to keep your existing customers and creating a customer base program. Create buyer personas and loyalty programs to help with the business model.
- Clearly define the terms of payment and any deadlines.
- Determining the most effective approaches to cutting costs.
- Investing in crisis management such as supply chain disruption.
We know that the world of loans is not an easy one to wander, less when you have a small business to run. We hope this guide has given you an idea of how to stay alert and tackle any financial problems you might have when it comes to your small business. The Quick Capital Funding team is always available to answer all your questions and get you the loan you’re looking for!