Update January 2019: This article on trends in managing small business finances was written almost exactly 10 years ago. After doing a bit of updating the 10 points below are as relevant today as they were then.
No matter what happens in the economy, small business owners are used to adapting to diverse issues. Year in and year out, small businesses remain the economic engine of the U.S. and will continue to be so for a long, long time.
Small business owners are continually challenged to get more creative to help their companies survive and thrive. One thing’s for sure. No matter what happens in the bigger economy, small business focus will be where it should be – on the company. Sales, profits and cash flow rule in a small business.
Here’s what I think smart business owners will do to keep their cash flow going in the right direction.
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 we will look for new niches to focus on. Small business people will find new ways to market to reach those in their current target area. We assess the business landscape and create new businesses to solve business problems that no one has even thought of before.
Managing our small business finances for the smartest owners becomes second nature.
Accounting software is a superior way to manage finances
I hope you are not still using spreadsheets to manage your small business finances! And please don’t just rely on the balance in your checking account to tell you how your business is doing. Eventually you will get rudely surprised by what’s NOT in your bank account.
Accounting software today is easy for non-accountants to use. And it’s really a must for any business to stay competitive. It saves time. Good software actually helps educate and train you about financial moves (through tips and guided experiences).
And it offers business intelligence. Analytics and reports based on your numbers are essential if you want to build a solid foundation for growth.
Small business owners increasingly 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. That way you can see if it’s the right solution for your small business. That’s one of the advantages of cloud solutions. You can do a free trial.
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, individuals register as lenders and set the minimum interest rate they are willing to earn.
There are also a large number of online loan marketplaces. Small businesses can seek and get financing from banks, credit unions and other lenders. And you can apply for a loan from the comfort of your home or office.
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. The cost of having employees on staff takes a big chunk out of the bottom line for any business — as much as 60 percent. Not only that, it’s a major commitment. If times are uncertain, who wants to commit to putting someone else’s financial future in your hands? So 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.
Bartering remains a cash outflow buffer
Bartering is another way to manage small business finances. Most barter arrangements take place on a one-to-one basis between two companies. One company has a need. The other has a solution.
You see it often. For example, a web designer will do a design refresh for a marketing consultant, and the marketing consultant will write some marketing copy for the designer’s own website. The two parties benefit from what each other offers. This will continue, as it has throughout history.
According to Wikipedia, it is estimated that around 500,000 businesses in the U.S. are involved in barter exchange activities and that approximately 500 commercial and corporate barter companies serve all parts of the world. Check out the International Reciprocal Trade Association (IRTA) for more information around organized approaches to bartering.
SBA becomes an important small business partner … again
Depending on the Administration, the SBA administrator either has been a part of the president’s cabinet — or not. Currently, in 2019, the SBA Administrator is a member of the President’s cabinet. As a cabinet-level executive, the SBA can get higher visibility and support for initiatives.
The effectiveness of the SBA depends greatly on the leadership of the person in charge of the SBA. The person in charge must understand small business and know how to navigate the federal bureaucracy. Lending guarantees, disaster recovery and educational resources are all ways the SBA assists with small business finances.
Social media is the new way to get out of a cash flow crunch
If you haven’t heard of Twitter, Facebook or any of the other social media 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 when Remarkablogger — Michael Martine — reached out to his social network for help after a major car accident. They came to his rescue. Without this assistance, his business may have struggled to survive.
That’s an unusual case. Most of us will use social media as a way to boost our marketing, engage in flash sales, and expand campaigns. If you are in a cash flow crunch, turn up the dial on that low cost marketing.
Credit cards continue to help manage small business finances
Year after year, survey after survey, we learn that large numbers of small business owners use credit cards to finance their business operations.
But the credit isn’t necessarily cheap, especially if interest rates rise sharply. Read “change in terms” notices that arrive with credit card statements.
Keep a sharp eye on your available credit. Take defensive action by shopping around to find the best card available.
Don’t hesitate to switch cards. Card programs come and go. The benefits and rewards change. In fact, you may have been converted over to a new program by the card issuer, without even realizing it. Why stick with something if it no longer meets your needs?
Remember to apply for a business credit card, not just a personal card. Business credit cards are one of the easiest ways to establish a credit history for a new business.
And use that card wisely to develop a good credit history. Repay promptly or better yet, through automatic payments. You will be glad you did, should you need to apply for a term loan or line of credit.
Increased attention on collecting receivables
Small businesses aren’t the best at collecting the money they are owed according to a “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.
To manage small business finances, smart owners are finding it easier to get invoices out the door quickly once work has been completed by using the right tool. And a good invoicing tool makes it much easier to follow up on overdue invoices. This means as a group, we small business owners are getting the money we deserve sooner. And we’re getting it more regularly and more reliably.
Here’s another tip. Look at around at what others, especially small businesses, are doing. We small businesses tend to receive invoices from suppliers that may be using neat tools. Observe and follow suit. No one ever said you couldn’t learn from others.
A better focus on personal finances
It’s no secret that small business owners with bad personal credit have a tougher time securing funding for their businesses. Most lenders take the owner’s fiscal circumstances heavily into account when making decisions to extend business credit. A good credit score can help you get a better small business loan.
To increase the possibility of obtaining credit, savvy business owners will make sure their personal finances are in good shape. With the availability of personal credit monitoring services and the ability to check one’s credit score, we feel more empowered. We are able to take steps to improve our FICO score. And using solutions like Mint we can do a better job of managing our personal finances.
So there you have it. Ten trends we see in the world of small business finances. I’m optimistic because no matter what the external drivers have been, small business has always survived. This year will be no different.
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.
“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.
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.
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
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.
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)?
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.
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.
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.
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:-)
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).
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..
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.
Finding opportunity in chaos is a way of life for me!
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.
@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.
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
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
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.
@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.
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.
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.