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Top 10 Trends In Managing Small Business Finances

Top Trends in Managing Finances in 2009There’s not much good news to report on the financial front as we move into 2009. Layoffs are occurring at breakneck speed and “out of business” signs are in high demand for many small business owners.

Overall, the landscape is different than it has been for a long time, but small business owners are used to adapting to diverse issues and have remained the economic engine of the U.S. for a long, long time.

I expect that force to remain constant during 2009 as small business owners get more creative to help their companies survive and thrive. One thing’s for sure. Small business focus will be where it always should have been – on cash flow. Here’s what I think small business owners will be doing in 2009 to keep their cash flow going in the right direction.

  1. Wise business owners find opportunity in chaos – While everyone else is focused on what they can’t do, small business owners will focus on what they can do. That means they’ll look for new niches to focus on and new ways to market to reach those in their current target area. They’ll assess the business landscape and create businesses to solve business problems that no one has even thought of before.
  2. Cloud computing becomes mainstream and offers cost-effectiveness – A big cost for any business is upgrading to current versions of software to stay competitive. Technology has made so many advances in the last few years, much of that replacement cost is no longer necessary.  Small business owners will turn to online solutions, like QuickBooks or FreshBooks to manage their finances. Each of these services offers a chance to try the software for free to help small business owners determine the right solution for their business.
  3. New financing opportunities appear – Over the last few years, peer-to-peer lending platforms have entered the marketplace offering financing options. With these financing platforms, people register as lenders and set the minimum interest rate they are willing to earn. When someone applies for a loan, the lending network typically secures the loan and then sells promissory notes to the lender. These networks have come under recent scrutiny by the SEC which claims these notes are investments which must be regulated. Given recent economic events, the intervention by the SEC is a good step in the right direction to protect both borrowers and lenders. If the peer-to-peer lending companies can get through the regulatory requirements, growth in this loan area will definitely rise during 2009.
  4. Small businesses will opt for contractor vs employee – Hoping to remain lean and mean to keep their bottom line stable, small businesses will tap heavily into the freelance contractor arena for business assistance. And more businesses will look to virtual assistants (VA) for help. VAs can be found in any specialty area to help small business owners achieve business success. Since the cost of having employees on staff takes a big chunk out of the bottom line for any business — as much as sixty percent — small business owners will take a closer look at whether to hire full time or use the wealth of temporary talent in the marketplace. This assessment will be based on short term business needs and long range goals of the company. The best bet for determining the right strategy is to perform a cost / benefit analysis and to ensure the hire passes the IRS Independent Contractor test.
  5. Bartering as a cash outflow buffer picks up – Most barter arrangements take place on a one-to-one basis between two companies, one with a need and the other with the solution. According to wikipedia, it is estimated that over 500,000 businesses in the U.S. are involved in a barter exchange activities and that approximately 500 commercial and corporate barter companies serve all parts of the world. Memberships will be on the rise for two barter industry groups, the National Association of Trade Exchanges (NATE) and the International Reciprocal Trade Association (IRTA) as more small business owners seek barter opportunities. As reported in BusinessWeek.com NATE has already seen a 10% to 12% increase in new members and recently reported that 400 barter exchanges in the U.S. and Canada generated transactions worth $4 billion a year.
  6. SBA becomes an important small business partner … again – During the Clinton administration, the SBA administrator was part of the president’s cabinet which hasn’t been the case under the Bush administration. President Elect Obama has completed his cabinet selections which include an appointment for the Small Business Administration. Obama was co-sponsor on Senate Bill S2.1256: Small Business Lending Reauthorization and Improvements Act of 2007 which is still pending vote in both the House and the Senate. This bill will move quickly through the process and onto the President’s desk for signing when the new administration is in power. Once in place, capital for small business loans should be easier to obtain. Pick up your copy of his plan for small business now (PDF) to read all the details.
  7. Social media is the new way to get out of a cash flow crunch – If you haven’t heard of Twitter or any of the other social media tools available, you must be living in a cave. Social media is about having a conversation with business partners, customers and prospects. It’s inexpensive or free. For the most urgent cash flow issues, some small businesses will reach out to their network for help. A good example of this happened just recently when Remarkablogger – Michael Martine reached out to his social network for help after a major car accident and they came to his rescue. Without this assistance, his business may have struggled to survive.
  8. Credit cards continue to be a top financing source – According to the 2008 National Small Business Association (NSBA) survey of small business owners, 44% use credit cards to finance their business operations. With bank loans getting harder to secure, the number of small business owners using credit cards will rise. But the credit won’t be cheap. Credit card companies have been reducing credit lines and raising interest rates over the last few months. That means small business owners need to keep a sharp eye on their available credit by reading change in terms notices that arrive with credit card statements and take defensive action by shopping around to find the best card available. Help is on the way from the government, but not until July 1, 2010. The Federal Reserve Board approved regulations this month that will stop arbitrary increases in interest rates and eliminate two cycle billing. This is good and bad news for small business owners who may have to deal with increased tightening of business credit over the next year as a result of the pending action.
  9. Collecting receivables gets increased attention – Small businesses aren’t the best at collecting the money they are owed according to a recent “Getting Paid Survey” by Intuit. Not collecting on overdue debts has amounted to a $42 million dollar loss for 22 million small businesses in the US. That’s a lot of money to lose. An increased focus will be placed on getting invoices out the door quickly once work has been completed and follow up on overdue invoices will begin sooner to ensure they get the cash they deserve.
  10. A better focus on personal finance integrity – It’s no secret that small business owners with bad credit have a tougher time securing funding for their businesses.  To increase the possibility of their business obtaining credit for business growth or sustainability, business owners will focus on making sure their personal finances are in good shape by taking steps to improve their FICO score and using free software solutions like Mint.

So there you have it. Ten trends we’ll see in action during 2009. I’m optimistic because no matter what the external drivers have been, small business has always survived. The year 2009 will be no different.


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Denise O'BerryAbout the Author: Denise O’Berry is a small business expert who provides tools, tips and advice to help small business owners be successful. O’Berry is the author of “Small Business Cash Flow: Strategies for Making Your Business a Financial Success.” Her business blog can be found at Just for Small Business.


Denise O'Berry

Denise O'Berry Denise O'Berry is a small business expert who provides tools, tips and advice to help small business owners be successful. O'Berry is the author of "Small Business Cash Flow: Strategies for Making Your Business a Financial Success." Her blog can be found at Just for Small Business.

25 Reactions

  1. I agree with the point about social networking. I remember when Michael’s car accident happened – it was when I was a new Twitter user. I couldn’t believe the outpouring of support! Another example of using social networks would be the #hohoto event. This event (held in December at the Mod Club in Toronto) was organized solely on Twitter and raised thousands of dollars for the Food Bank. Non-profits can certainly harness the power of Twitter to raise money. Other social networks (like RedWire – a social network for entrepreneurs) can allow you to connect with other like-minded entrepreneurs and small business people – this can save you money as you may learn best practices and preferred suppliers.

  2. Anita Campbell

    “Cloud computing” (online software applications that you pay monthly for) really is a great way to save money.

    (1) You don’t have to shell out big dollars up front to buy software, and instead pay a much small monthly fee.

    (2) Usually there are no long term contracts, so you can cut off the expense if absolutely necessary.

    (3) There are so many services available that will save you time and make your operations more efficient — so you can get more done and not necessarily need to hire people for a task.

  3. I think that small businesses opting for VA’s vs. employees will help many of those that find themselves unemployed right now. Both parties find benefit in that situation – it’s a win-win – and that can lead to much success for each.

    And collecting receivables at this time will definitely receive more focus. But in my opinion, your receivables should always receive a fair amount of focus anyway. So this may be a good year for people to devise methods of collecting and focusing on receivables that they will adhere to in the years to come.

  4. I see similar trends…We started ZimpleMoney.com based on some simple ideas that Social Finance and Social Media will cross over to make a powerful new way to deliver and buy bank services. Your points #3 and #7 blended. See what we are doing at http://www.zimplemoney.com

  5. Businesses are going to be operating on a tight budget this year. As you pointed out, limited funding is only available to them since it’s harder and harder to obtain loans and large credit lines. Contractors are always a good option since you can hire then on an as need basis. Not having to keep an entire staff with paid benefits is a definite money saving benefit.

  6. Martin Lindeskog

    I am interested in learning more about point #5 “Bartering as a cash outflow buffer picks up.” As a “trader in matter & spirit,” this look like a fascinating idea. The question is how the “tax man” view this transaction. Will you be punished or will they keep their hands-off (laissez-faire)?

  7. Key trend for small businesses is going to be focusing on things that produce revenue. Marketing and sales will be key. R&D, risky expansion, and other activities that are typically more related to setting the foundation are going to be put on hold.

  8. Denise,

    This was very informative. Seeing as my company serves small businesses in a vendor/contractor form, this is hopefully a good open market with opportunity for us.

    Bartering sites need to do a better job of keeping the value of a bartering dollar realistic, but I do like the idea of barter.

  9. Denise O'Berry

    Thanks everyone for taking the time to share your thoughts! I appreciate the discussion.

    @Erin — Yes, we’ll definitely hear plenty more about this as the year goes on.

    @Anita — Good description of “cloud computing.” It really is a great way for small businesses to stay up to date with software at a minimum cost.

    @Chris — VAs are a good value and can help springboard a business at less cost than hiring permanent talent. Small business needs to make sure they are educated and following the rules for contractor vs employee to stay on the right side of the IRS. I’ve never understood why small business owners drag their their feet on receivables. Their success truly does depend on it.

    @Steve — Thanks for the link.

    @Amanda — You bet. Appreciate the comment.

    @Martin — Bartering is subject to the same income rules as far as the IRS is concerned. See this http://www.irs.gov/businesses/small/article/0,,id=188095,00.html

    @Nwest — Agreed. Then they have to collect the money. Cash flow is what will matter.

    @Pinny — Thanks. I see good opportunities for plenty of small businesses who provide services to other small businesses.

  10. In addition to the cost cutting impact of online financial software, there’s also the benefit of accessing and entering information from any computer (and increasingly, mobile devices.) As business owners, our time is getting more precious every day, requiring the need to be productive in ever smaller increments of time.

    Fyi, for self employed individuals (a growing segment in these times), might I suggest our simple online bookeeping application, http://www.gobootstrap.com. We sync invoice and payment data from FreshBooks (we too are big fans), help folks track expenses/deductions, and also deal with estimated taxes. Plus, you can’t beat the price:-)

  11. Great insights and tips!

    In regards to VA services (being my business)- small businesses who have recently downsized have found our service and other VA services very useful in keeping productivity up and costs down. The hardest parts are figuring out what tasks in your daily operations you can delegate. No matter what VA service you use, make sure you know what type of VA you need: Freelancers are great for some people (individuals especially), VA companies with access to pools of VAs work better for others (small businesses with more work to outsource).

  12. In addition to cloud computing providing a convenient monthly service fee, i think the other big benefit of cloud computing is that when your business grows, you simply turn the dial up and you get more computing power to meet your growing needs..that simple..

    However, as good as it sounds, it may not always be the more cost effective approach..when choosing software for your small business, keep in mind some hidden costs; For e.g it may just be harder for your employees to use the software from the cloud computing vendor,than it is to use standard small business software that can be installed on your users desktop,thus resulting in loss of productivity..this is possible as software delivered over the web has its limitations in terms of providing rich user interfaces..

    – bizguru

  13. business owners will focus on making sure their personal finances are in good shape by taking steps to improve their FICO score and using free software solutions like Mint. –> This is a very helpful tip, Denise! This is honestly my first time to hear about this and I think I should give this a try.

  14. Finding opportunity in chaos is a way of life for me!

  15. These are some great tips on business management. Running a business can be overwhelming, even for those with a lot of experience. Tips such as these help a lot and the more you know about how to control it all, the more you will feel better and your business will be better off. Thanks for the post.

  16. Denise O'Berry

    @Kevin — so true! Having a reliable internet connection is key. Thanks for the link.

    @Jaspar — you’re right. The small business owner must do their homework properly or may be sorely disappointed.

    @BizGuru — good point about looking at both sides. Due diligence is a good thing.

    @Arthur — absolutely! The owner’s FICO score is critical.

    @Bizsugar — Thanks!

    @CleaningBusinessGuru — Great outlook.

    @ClickandInc — You’re welcome and thank you for your comments.

  17. Social networking ot not, many big companies are losing market share to small rivals. So, there are many losers and some winners in the boom and bust cycles. That is the small business trend. Many people in the business world are concerned about doom and gloom, ground realities, insolvency and bankruptcy in turbulent local and global markets. Even top lawyers, accountants, market analysts and auditors are already fired and facing long-term unemployment. There are no short-cuts for sustainable success and prosperity. Businesses need bespoke survival strategies to reduce losses, improve organic and inorganic efficiency, increase revenue, gain sustainable competitive advantage and outperform market competition. The strategies would help create new business opportunities and jobs. Many investors target niche or captive markets where consumer demand still continues to grow in double-digits annually to 2030. http://www.FixyaExperts.com

  18. This articles is very informative. I think a few more action need to be taken:
    1. Bartering sites need to keep up with this trend.
    2. Social lending need to be competetive
    3. Cloud computing and os need to provide better service

  19. Thanks for the great ideas for things that small business owners can do to increase their cash flow that they may not have thought of.
    The trend to move from employees to contractors worries me, though. Yes, you can save money doing this, but that doesn’t mean that small business owners should be throwing employees to the wolves and replacing them with contractors. I believe that employers need to work on keeping their trained talented people, so they’ll still have them when times turn around.

  20. Denise O'Berry

    @tyneham All good points. Small business has plenty of ways to win.

    @hamdani I agree.

    @susan The intention is not to replace full time employees with contractors. It’s to ensure that small business looks at all options before hiring staff.

  21. How small businesses choose to obtain capital is also changing quite rapidly. Affinity lending seems to be the finacial pool of choice due to its flexibility, especially when there are several sites on the web that offer financial management services that you can DIY.

    Sites such as LoanBack for example are BBB accredited and help individuals to structure and formalize their personal loans from friend, family or business acquaintance. The best part is that it can be used by both lenders and borrowers to track their loan repayments.

    When running a small business in a still struggling economy, alternative is probably the best way to go.

  22. Finance is the heart and soul of any business standard and the urge to manage the same with practical approach does make a significant contribution to betterment of the business. I like using the cloud based expense reporting software from Replicon ( http://www.replicon.com/olp/expense-reports.aspx ) for making my financial segment strong and structural in the industry.

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