Common financial worries for small businesses (and how to overcome them)

Common financial worries for small businesses (and how to overcome them)
Chloe Miller
Chloe MillerChloe Miller

Posted: Wed 18th Oct 2023

Running a small business comes with numerous challenges. With limited resources and often little experience in the field, you have to navigate constantly testing waters, with outside factors like inflation, interest rates and changing consumer habits consistently at play.

Coupling this struggle with the ever-present challenges of mastering and managing finances effectively, while positioning the business towards growth, is one of the most pressing challenges you can face as a small business owner.

Mastering cash flow, profitability, compliance and – at least currently – soaring inflation rates is a gargantuan task, and particularly feels overwhelming when going at it alone.

However, there are some key strategies and tips that can help you overcome these hurdles effectively. By understanding and adapting in line with the advice outlined in this blog, even the most ambitious and savvy business leaders can enable sustainable, long-term growth.


Watch this webinar to uncover tools for managing your small business finances:


Financial pain points that stop small businesses from growing

1. Cash-flow woes

Cash flow refers to the movement of money in and out of a business. It's essentially balancing the amount of money that's available after all expenses have been paid and the maximum amount of income has been achieved, usually in a given month.

For many start-ups and small enterprises, unpredictable income paired with ongoing expenses can make maintaining a healthy cash flow difficult. When more money is going out than coming in, things get tough quickly.

Tips to improve your cash-flow management

  • Send invoices promptly: Billing clients as soon as work is completed can help you receive payments faster. Chasing invoice payments is something that no business owner wants to do repeatedly for months on end. Make good use of automated software to send invoices, prompts and reminders to a set schedule.

  • Offer early payment discounts: Giving customers an incentive to pay invoices early can work to your advantage. By offering them a small percentage discount for paying within a short timeframe, you can boost your cash flow without waiting for up to 30 days for them to finally make the payment.

  • Extend accounts payable: Similarly, some suppliers or vendors may offer you discounts for early payment. If they don't, it's best to wait until the last day a bill is due before paying it, if you can. Doing this with trusted suppliers or partners can put your reputation at risk, so exercise caution. But before paying utilities or bills, allow the biggest possible amount of time for cash to come into the business before it must go back out.

  • Use credit strategically: It's wise to only use lines of credit when necessary – for example, to cover short-term cash shortfalls. Relying solely on credit for all outgoings without sufficient income to gradually reduce the debt can spell disaster, particularly if you're burdened with high-interest rates alongside the credit. It's reassuring to have a safety net there when the costs pile up, but don't rely on it exclusively.

  • Build an emergency fund: Put aside a last-resort cash reserve to cut into, should unexpected expenses arise or client payments be delayed. Try to accumulate enough to cover at least three to six months of operating costs. That will give you some financial stability in times when revenue takes a dip.

2. Elusive profitability

Being consistently profitable is another hurdle for small businesses. At the start of your business journey, profit margins may be exceptionally thin, and it may take some serious crunching before you begin turning a profit.

To get a firm handle on establishing a profit, consider the following:

  • Calculate the break-even point: Understand the minimum number of sales you need to make to cover costs. With this information, you can make sure you're pricing products to generate the most profit.

  • Review margins regularly: Keep close tabs on margins for your products or services. As you scale, you may need extra resources, which can cut into budgets. Look for ways to increase margins to improve profit over time as your business grows.

  • Control overhead costs: Keep fixed overhead costs like rent, utilities and insurance as low as feasibly possible when starting out. As you expand, these may rise, but at least you can keep the infrastructure intact during the crucial first few years.

  • Strategic outsourcing: Bringing all tasks in-house means hiring employees, which you may not be able to justify financially at first. Outsourcing functions like website design and hosting, social media management, and even payroll and accounting services can keep your outgoings more variable and cost-effective. Over time, you may gradually bring functions into the business as your needs change.

  • Offer high-margin add-ons: Remain adaptable when it comes to your core products and services. You may find that providing extras and added-value services complements your offering and subsequently boosts your profit margins, thus giving you more revenue.

3. Tax and compliance headaches

Keeping to the laws and regulations around tax and finances in general is non-negotiable, and it can quickly consume hours of time and energy. Common requirements like payroll, National Insurance contributions, visas, loan repayments, and corporation tax filings, to name just a few, can become burdensome before long.

Every business is different when it comes to following rules and regulations, as many depend on the industries and sectors in which the business operates. These, coupled with mandatory tax laws, can become difficult to balance, particularly for new players in the field.

The most effective solution to avoid a tax headache would be to hire a professional accountant, bookkeeper and tax professional to keep your financial records organised, with annual tax returns prepared ahead of time.

Schedule regular check-ins with your bookkeeper and accountant to make sure all receipts and reports are properly recorded and all payroll-related queries are addressed, so you aren’t liable for any hefty penalties.

4. Battling inflation

Inflation rates reached record highs in January 2023, creating additional pricing and cost pressures for businesses. While this is starting to fall, prices for goods and raw materials remain steep.

Consequently, businesses must still adapt their strategies to stop inflation from eroding their profits. To do this, you must be flexible in a number of areas in which inflation can have a large influence.

For instance, you should negotiate long-term contracts with vendors and contractors for business services and supplies to make sure you're getting the most value for money. Find affordable alternative suppliers or products that provide the same quality, and cut any unnecessary fixed costs that could improve profitability.

Set fixed pricing tiers and be transparent with your customers about pricing. They'll appreciate this as it means avoiding incremental price hikes. If you do need to raise prices, explain why and emphasise the value that customers get. This will be necessary from time to time, but satisfied, long-term customers and clients will hopefully understand.

Key takeaways

Managing finances in order to grow your small business is no simple task. Cash flow, profitability, compliance and inflation all present hurdles for you to overcome. However, implementing the strategies outlined above can help you take control over the burdensome and frustrating pain points.

The bottom line is that small businesses like yours face increased uncertainty in these turbulent times, and gaining a firm grip on finances is key to weathering this storm.

With persistence, diligence and strategic planning, by allocating your resources smartly and by getting expert tax and accounting support, you can soften the financial blow while staying firmly on the path to long-term success.

Relevant resources

Chloe Miller
Chloe MillerChloe Miller

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