Running a small business is extremely difficult. From finding new customers to retaining workers to staying compliant with government regulations, there are several challenges small business owners must meet on a regular basis. Compare this long list of challenges with overextended professionals who wear many hats, and you have a recipe for mistakes and miscalculations. One area where you cannot afford to make mistakes is your finances.
You may not be an accountant or a financial whiz, but it's important to have a good understanding of typical business financial problems and how to solve them. Whether you're a new business owner or a seasoned veteran, it never hurts to review some common problems and better understand the options available to solve them. Certain issues can change with growing and changing trends across small business.
The following list is five small business financial challenges that will affect companies in 2020. There are also some tested solutions to these problems, should your business face them.
Growing financial trends and why they matter
This is a no-brainer: Financial decisions matter because if your business doesn't have money, it will not exist. Of course, money matters when it comes to small business, but not every business owner prepares to protect their money in the same way. Part of staying on top of your finances is analyzing market trends and developing a good understanding of what threats are out there.
For example, the freelance gig economy is growing faster than ever. In fact, Mastercard projects the volume of the gig economy to grow by 17.4% CAGR between now and 2023. This will have a deep impact on small business finance, particularly cash flow and tax compliance. Another growing trend that could affect small business finance is the cash-free trend. Sweden is in process of going fully cash-free as a country. In many major U.S. cities, small businesses are switching to POS and other payroll systems where cash isn't accepted: Everything happens via debit and credit card and via contactless systems such as Apple Pay and Google Pay. This means small businesses are less at risk of theft from employees.
As a small business owner, you must stay on top of financial trends so you can find the right solutions to keep your business afloat.
Top financial problems for SMBs (and how to solve them)
Tax compliance
In 2017, Congress passed a major tax reform that affected small business. Tax law is complicated, and these changes are still taking effect. It's important to have full knowledge of what you're expected to pay. Especially with up to 85% of small businesses overpaying on their federal income taxes each year. Running a business is difficult enough as it is; there's no point in complicating things by overpaying the IRS.
This, combined with constantly changing labor laws, means that it's nearly impossible to stay up to date with tax compliance on your own. For instance, did you know that the Fair Labor Standards Act has required raising the standard salary level from $455 to $684 a week, to make all employees who earn less than $35,568 annually – or some 1.3 million workers – eligible for overtime pay of at least time-and-a-half? Under California AB5, many independent contractors will need to be reclassified as employees, making them eligible for benefits. In Washington state, eligible employees will be entitled to take up to 18 weeks of paid family and medical leave per year. All these changes are new for 2020.
Luckily, there are a few solutions out there that provide small business owners with quick, pain-free tools, letting small business owners focus on running their businesses instead of researching things like tax law.
QuickBooks, for example, provides a payroll solution that will automatically calculate your monthly and yearly tax obligations. While running payroll is its main function, it has built-in features to help you easily pay your quarterly and yearly taxes. This kind of solution means you don't have to worry about researching tax law. It's organized on a state-by-state basis, and it includes federal requirements as well. This means that QuickBooks Payroll can help you stay organized and up to date on tax compliance and other payroll needs.
Cash flow
Just about any small business owner will tell you cash flow is a challenge. Whether you're taking on higher overhead expenses to create or develop a new product, or you're trying to cut costs where you can, cash flow is an issue. According to Guidant Financial, 33% of small business owners listed cash flow as a major small business challenge. What's even more alarming, however, is U.S. Bank found that 82% of small business failures are due to problems with cash flow.
Sticking to a budget can be difficult. If you use QuickBooks' online payroll solution, you'll be able to budget better, track your spending and better understand how payroll is impacting your bottom line. You'll also have a more realistic picture of where your money is, where it's headed and how you're funding your business. By staying organized, you can avoid running into problems down the line. QuickBooks is the only solutions provider that can offer SMBs the kind of transparent, organized financial management tools needed to succeed. As a useful bookkeeping tool, QuickBooks' online payroll platform can change the way you run your small business.
Retaining customers
Like cash flow, customer retention can be a major challenge for small business. The weight of this challenge is significant: No returning customers means your business will eventually stagnate, and even potentially fail. Keeping people in your shop or on your online store is essential to building a strong, healthy small business. Harvard Business School found that increasing customer retention by 5% can result in an increase of up to 95% in profits. More importantly, 82% of companies agree that customer retention is cheaper than customer acquisition.
By using QuickBooks software, you can stay organized and on top of your income, which can help you in your relationships with customers.
Building customer loyalty cannot just happen overnight. It's essential to do your best to work at it each day. One way to better retain customers is to focus on helping your customers, not selling to them. Your business should solve a problem for people. Use this mindset to better connect with your customers: You want to help them. This genuine attitude will help you build a better brand and cement customer loyalty.
Raising capital
Much like cash flow and retaining customers, raising capital can be a make-or-break challenge for small businesses. When starting a new business, 77% of small businesses rely on the personal savings of their founders for initial capital needs, according to a Gallup poll. Growing a business often means acquiring capital to enter new markets, purchase new locations or expand an existing business.
There are high requirements for traditional bank loans that can be long and complicated. While it may be easier to qualify with online lenders, those loans can have extremely high interest rates. You should do your best to raise capital in whatever way you can. By using software like QuickBooks, you can stay organized as you grow your business organically. By accounting for everything and building a financial plan, you can build a better business.
What's even more interesting, however, is QuickBooks also has a small business lending program. It provides capital options for SMBs with an intuitive online tool. Of course, your specific loan situation will vary based on your business's situation, but it's worth understanding that QuickBooks is a holistic small business solution that can provide financial management tools and funding options, as well as time and attendance software.
Of course, sometimes growing your company organically can be a long and cumbersome feat. Sometimes you must strike while the iron is hot. That means exploring new capital options, like local accelerator programs and other small business loan options. You may even want to consider the Small Business Administration, which grants more than $30 billion in loans to small businesses each year.
Bottom line
Running a small business is difficult, and you must stay aware of the trending challenges that other business owners are facing. It's not always easy to overcome certain small business challenges, but they can make your business stronger. By investing in the right tools, you set your business up for success. That means looking into software options, like QuickBooks Payroll, and brainstorming more creative solutions, like taking out an SBA loan. Especially when it comes to cash flow and tax compliance, finding the right tools means everything today.
Running a small business is a balance between creativity, grit and organization. By sticking to it and investing in your business and yourself, you can build a healthy company that lasts for generations.