Five million new businesses were started in 2021, a record. According to data gathered by QuickBooks, this year over 17 million Americans expressed a desire to start a business.
In the aftermath of the pandemic, these new business owners face unique challenges. A recent QuickBooks Survey revealed that 99% of business owners are worried about inflation. The respondents also listed supply chain challenges, cash flow issues, low funding and skills shortages as the top threats to small businesses in 2018.
It’s not possible to overcome these challenges with a single magic spell, but taking small steps will help.
1. Costs and inflation are on the rise
Over half of small-business owners believe inflation is their biggest threat this year. Nearly all respondents to the survey expressed concern about rising prices of goods and labour, and over half said they were very concerned.
In order to combat inflation many small business owners are forced to dip into their business or personal accounts or to turn to credit cards or small business loans in order to cover rising costs. These are temporary solutions. Temporary funding is only a temporary solution.
Consider these tips to reduce the impact of inflation on your finances without destroying your savings or adding more debt.
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- Review all your expenses. Find areas where you can reduce costs. For example, products and services you don’t need for your business. Or utilities that you’re not using.
- Check out the contracts of your suppliers. They may be willing and able to offer you a better price, especially if they know that you are willing to order in advance or in bulk.
- Simplify your billing. Send out invoices immediately and follow up with past due invoices in order to maintain cash flow.
- You may need to rethink your pricing strategy. Increasing costs of goods or labor could have caused your margins to be out of balance. It is sometimes necessary to raise your prices in order to combat inflation.
2. Supply chain problems
Your supply chain is a series of steps that begin with raw materials, and end with the finished product in your customers’ hands. Optimising your supply chain will help you to save money, streamline inventories, and improve customer service. The events of 2020 have taught us that a well-optimized supply chain is not enough. It must also be resilient.
Your supply chain must be resilient enough for demand surges, shipping problems, and global volatility. Supply chain issues are the top business threat for 33% of owners today. You can improve your supply chain if you:
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- Implementing Buffers. Maintain a buffer of inventory as a protection against delays in suppliers or surges in demand. Create a buffer time to prevent late deliveries. Implement a capacity cushion to take advantage of underutilized spaces, such as warehouses.
- Diversifying Your Network To combat supply chain disruptions, diversify your manufacturing network and source network. You’ll be prepared for unforeseen events by having a backup plan.
- Practice demand forecasting. Use data to estimate demand in advance. It’s best to be prepared than sorry.
3. Cash flow problems
Cash flow is a problem that affects more than two thirds of small business owners. This challenge has been made worse by inflation and rising costs. If you have more money going out than coming in, it’s impossible to pay employees, suppliers or other debts. Your lack of cash may force you to use your personal savings or miss out on great investment opportunities.
Negative cash flow is a serious issue for any business. There are several things you can try to to get back to a positive cash flow when your cash flow is slowing down.
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- Create a cash-flow forecast. Cash flow projections or forecasts predict the amount of money that enters and leaves your small business. Cash flow forecasts can help you understand your business’s finances and identify problems before they occur. A study showed that tracking cash flow with software can lead to a reduction of 50% in loan interest.
- Cut expenses. Cancel or reduce premium services and discontinue non-essentials while you focus on recovering.
- Pay faster. More payments mean more cash for your business. Ask for partial payment upfront, encourage early payments and accept multiple payment methods. This will make it easy for your customers to pay.
4. Low-cost financing
Low funding is the number one threat that small business owners face this year. You can only do so much to combat inflation or cash flow before you need funding. A small business loan can be the only solution to get your company back on track.
It’s easy to apply for a loan for your small business, but getting approved for funding for your small business is harder. You can increase your chances of being approved for a small business loan by:
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- Reduce your debt-to income ratio. Paying off old balances and increasing credit limits. Paying bills more often. Your credit utilization rate should be between 15 and 30 percent.
- How to improve your business’ credit score. Discover your credit score by using a credit agency that is reputable. You can improve your credit score by paying all bills on time, and opening credit with suppliers whenever possible.
- Increase your sales Lenders want to see your business already generate revenue. To increase your chances of getting a loan, boost your sales before you apply.
Small Business Grants can also be a good option for funding small businesses. However, they are often more difficult to get. It is more difficult to apply for a grant than a small-business loan. It’s worth applying if you believe your business is eligible for a grant. If you’re having trouble raising money, crowdfunding can be a great solution. You could also ask your friends and family to help.
5. Employee retention and skills shortages
Finding skilled workers is the top threat to one in four small businesses. Nearly half (49%) of small business owners say that hiring is becoming more difficult. It’s also difficult to retain skilled employees. 40% of small business owners say that employee retention is a problem.
Many small businesses raise employee salaries for both new and existing employees to solve this problem. To sweeten the deal, they’re increasing employee benefits and giving year-end bonuses. These strategies can help you retain and recruit talented employees. There are still a few things you can do in order to improve employee retention, and make your company more attractive to job-seekers.
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- A focus on diversity, equality, and inclusion. According to Glassdoor, more than three-quarters of employees consider a diverse work force an important factor in evaluating job offers. A third of employees say they would not consider working for an organization that lacks diversity. Commit to DEI through transparency about your company’s gaps, obtaining feedback from your employees and communicating your plan for improvement.
- Provide remote or hybrid options. Nearly 50% of small businesses reported they had remote workers after the pandemic, and those workers intend to continue working remotely. Owl Labs conducted a study that found that nearly half of employees would not consider returning to a job that does not offer remote work. The flexibility and autonomy offered by remote and hybrid work is highly desired by employees.
- Investing in employee development. According to a LinkedIn Learning Report, 94% of employees said they would stay with a company for longer if the company invested in their careers. The investment in training and development of employees shows that you care about your workers and value their contribution.
Challenge accepted
Every business, whether new or established, will benefit from improving processes, saving money and building a strong team. Even small changes to your current processes can have a significant impact on the success of your company this year and in years to come.