Managing Money: How to Reduce Financial Strain on Your Business

February 14th, 2023 Nina Sharpe Leave a comment

According to a study conducted by US Bank, as many as 82% of businesses fail because of cash flow issues. This recent study highlights just how important cash flow is, and how few businesses get managing money right.

Trying to balance books amidst a pandemic and subsequent global economic recession is far from easy, and can cause significant stress for big and small business owners alike. But it doesn’t have to be that way.

Businesses struggle to regulate cash flow due to a variety of reasons. From supply chain issues to late payments, there is an endless string of financial problems that can arise across industries.

However, it is the way in which businesses are approaching money matters that typically causes the most strain. Poor financial management practices are the number one reason why businesses fail, which is why we’re going to focus on how to correct them.

Why Is Money Management Such A Common Problem?

JP Morgan Chase & Co surveyed over 600,00 small businesses and found that the average business only has 27 cash buffer days. This means that if your business doesn’t start shifting its approach to sustainable cash flow management, it could head towards financial disaster in less than a month.

Fortunately, there are some simple, actionable habits every business owner can adopt to regulate cash flow and alleviate some of the stress that inevitably comes with running a business.

Chart out your cash flow

Navigating the choppy waters of business cash flow is one of the toughest parts of running a business. But that also makes it one of the most crucial. Fortunately, for the entrepreneurs of today, there are many accounting software platforms available to assist with this.

A digital cash flowchart can help you create easily comprehensive data spreadsheets that showcase your two main priorities: outflows (accounts payable) and inflows (sales of goods or services).

Employ financial forecasting tools

Another useful digital resource you can draw from to support financial management is a forecasting tool. Being able to track incoming and outgoing expense patterns in order to predict future outcomes can be a game changer for the way you approach business money management.

Stay closely on top of company debt

Debt is a fact of life for many people and businesses across the globe. But it’s not the accumulation of debt that is the real problem. It’s paying it back in a timely and sensible fashion.

Most companies rely on loans to set up a business and start generating profit. If you belong to one of those companies, keeping a close eye on interest rates is essential for avoiding financial ruin. It is particularly important to monitor variable rate loans, which can fluctuate over time.

Review your debt situation on a regular basis. Assess repayment costs, find out if your interest rates have changed, and determine whether your circumstances have changed enough to increase or decrease your debt funding. And always, always, always read the fine print.

Regularly review expenditures and ROI

Monitoring expense and ROI reports is a reliable way to prevent excessive spending and adjust your financial strategy as needed. Quality accounting software should provide you with the ability to create reports based on balance sheets, cash flow statements, accounts payable/receivable, and depreciation.

It’s also important to monitor payroll, even if you outsource some of your work. For any growing company (regardless of size), this aspect of money management can be more complex than estimated.

Build good business credit for loans

As your business grows over time, you may make the decision to take out a loan. Contrary to what you might think, loans are a smart way to keep your business afloat, while better, more lucrative systems are put into place. But to qualify for business loans, you need to ensure your tax is in order, and that you have a solid business plan and good credit.

Lenders look for clean tax records and proof that your business can repay the loan or that it has the assets to stand surety. With poor credit, receiving approval for business loans is also nearly impossible. So how do you build good credit? You pay off your debts fast, and you don’t take out loans with interest rates you can’t afford.

Assess and adjust your price margins

There are numerous factors that influence what your price margins should be: location, visibility, industry, and desirability, to name a few. And to make things even more complex, consumer behavior is constantly changing, so you need to keep a sharp eye on whether your prices match up to market sentiments.

Create an efficient billing strategy

A report from 2022 found that late and unpaid payments affect a whopping 87% of businesses. Receiving money that’s owed to you after the agreed-upon billing date is not just inconvenient, it can also seriously jeopardize your business’ state of financial affairs.

Therefore, it’s imperative that you organize your billing strategy in a way that makes it extremely difficult for late payments to occur. You can incentivize clients to pay promptly by offering small discounts for punctuality, providing diverse payment channel options, or penalizing lateness with a fee.

Make financial management a top priority

Money management should not be an afterthought for your business. It should be at the center of every decision you make. Without a consistent cash flow and a strong grip on financial affairs, your business will be too vulnerable to bankruptcy and failure.

Make a concerted effort to not only monitor but continue to improve your cash flow strategy. Think ahead, stay focused on your financial goals, and be on the lookout for ways to increase efficiency.

The Takeaway

If running a successful business was easy, everyone would be doing it. But in the highly competitive capitalistic society that we live in today, there is much more to money management than what meets the eye. Learning how to lift the financial strain on your business is key to helping it thrive in future.

By closely monitoring your cash flow status, regularly assessing things like ROI, billing processes, and profit margins, and cultivating healthy money management habits, your business will bounce back from financial strain stronger than before.

Archives, Global Trade Daily, Trucking

The Logic of Logistics for the New Normal: How the Trucking Industry Is Changing Amid Covid-19

November 3rd, 2020 Nina Sharpe Leave a comment

Like all businesses and sectors, the trucking industry has been forced to respond rapidly to the COVID-19 pandemic. The past year has demonstrated the importance of essential services preparing in advance for unforeseen catastrophes, and the need to be creative and flexible in industry operations.

Well, after the coronavirus has been brought under control, lasting changes will linger. Some of them will be positive, and others still will permanently improve the trucking industry’s status quo.

Beneficial Changes for the Sector

There are three key areas where trucking fleets’ daily operations could be positively affected by the pandemic.

1. The proliferation of contactless tech

Paperless and contactless technology has boomed during the spread of COVID-19. The highly contagious nature of the virus has forced industries, including the trucking sector, to implement new technologies to keep customers, clients, and drivers safe.

Experts predict that we will see significantly more paperless and contactless operations in the future. In terms of sales, virtual meetings will become the new norm, while electronic bills of lading are being normalized on truck drivers’ sides.

Contactless technologies are quicker, more efficient, and often more reliable to use, which could also save effort and costs during truck drivers’ orientation processes. The age of automation holds the potential to streamline trucking and delivery while minimizing the human margin of error involved.

The spread of contactless technology has not only improved safety and sanitation, it has enhanced the general efficiency of the trucking industry too. It’s drastically lowered the number of times drivers need to walk from their trucks to security booms and warehouses. At first glance, this may not seem significant, but those small-time savings can accumulate quickly, and translate into vast improvements in operational time frames.

The pandemic has created more opportunities for innovation. This is especially true with the way that the trucking industry uses its most powerful resource: its dedicated drivers and staff teams. Employees’ well-being is being taken into account on a level never seen in the sector, and as it turns out, this has been exceptionally good for business as well.

2. The re-imagination of the traditional office

The traditional office structure has been turned upside down by the COVID-19 crisis, regardless of the industry in question. Many trucking companies have instructed most, if not all, of their office staff members to work from home. It has required only upper management members to remain in the office, either on an as-needed or consistent basis.

This re-imagination of the classic office set-up has created an unexpected perk. Those employees who started working from home quickly became accustomed to operating in low-stress environments and become more effective workers as a result.

Remote work could allow companies to scale down their offices, saving money that could instead expand their trucking fleets. Commercial real estate is in a major state of flux as working from home steadily cements itself as the ‘new normal’.

People may also be required to spend less time on the road traveling, even once it’s been deemed safe to do so. A combination of in-person meetings and virtual operations will help to balance trucking companies’ cost savings while reducing work-related travel costs for the sector’s employees during financially challenging times.

3. The development of new ways to onboard truck drivers

COVID-19 has forced companies to change the ways they classically onboarded truck drivers. This external pressure has made the process more efficient, which will benefit businesses long after the pandemic is over.

Some companies are moving parts of their driver orientation processes online—especially the paperwork. Others adopted fully virtual orientation practices, which also proved to be successful. It’s expected that many more will use electronic document signatures and orientation videos in the near future to maintain social distancing and streamline their onboarding systems.

It’s been noted that some drivers are better suited to virtual orientations than others. A solution to this issue could be to develop a hybrid model that offers an in-person orientation, with certain parts of the process completed online. Ultimately, it’s essential to strike a fine balance to preserve a company’s onboarding efficiency while prioritizing safety at every step of the way.

Additional Unanticipated Changes

There are several other facets of the trucking industry that could be permanently altered because of the effects of the virus. Certain sectors may struggle as the pandemic strangles national economies. Smaller businesses and owner-operators may be particularly at risk of closure or financial difficulties.

On the other hand, other sectors may thrive because of the crisis. The grocery supply industry is a great example of a sector that is booming as consumers’ demand for staple items rises.

Truck drivers may be able to look forward to a decrease in traffic too, and as congestion is a serious, costly issue, this is a major advantage. Millions of people have turned to working from home (or become unemployed) in 2020, and traffic congestion is noticeably diminished. This trend could persist even after businesses reopen, as many employees will continue to work from their living rooms after the pandemic has blown over.

The Bottom Line

The COVID-19 pandemic has undoubtedly created disruptions for the trucking industry. Companies around the world have had to grapple with supply chain interruptions, changing consumer demands, infections in their workforces, and the challenges that come with switching to remote work technologies.

With all that said, there is a silver lining on the horizon. Many of the adaptations the trucking sector has been forced to adopt will prove beneficial for business, in both the long and short term.

Companies can use remote and contactless technologies to improve their operations, prioritize safety and sanitation, and potentially boost their profit margins. Truck drivers will be less pressed for time as a result, and office workforces may become progressively more productive as it encourages them to work from home.

Archives, Global Trade Daily, Special Reports

5 Solutions to Small Business Money Troubles

October 21st, 2020 Nina Sharpe Leave a comment

Virtually every small business, no matter its focus or industry, can fall prey to financial issues from time to time. Widespread crises like pandemics can instantly amplify these effects and have left many SMEs in the lurch in 2020.

Over and above the effects of challenging times, entrepreneurship is fraught with difficulties itself. Both experienced and novice business owners face significant challenges, and their nature can vary widely. Arranging funding for start-ups, maintaining cash flow, and dealing with strapped budgets are all part of an entrepreneur’s day to day operational obstacles.

If your small business is facing concerning fiscal challenges, you’ll need to approach them delicately and deliberately with the right mindset. Experts recommend tackling such challenges as they arise, rather than leaving them to snowball into much larger problems later down the line.

Here are solutions to 5 of the most common money troubles facing small businesses today.

Issues with Capital

Banks are becoming increasingly strict and discerning in terms of which small businesses they are willing to risk financing. This has unfortunately left many business owners in a tricky position, forcing them to drastically reduce their capital budgets.

Thankfully, there are many ways to secure financing for small businesses that don’t involve conventional bank loans. You could turn to friends or family members for assistance or perhaps go into business with a like-minded partner who can offer the capital you need to stay operational.

Many entrepreneurs view self-fueled growth models as the least risky and most effective way to operate small businesses. Instead of trying to secure funding to establish your company overnight, focus on your primary customers and offer value-added services to them. Your business will probably grow automatically thanks to word of mouth. However, if you do still require outside funding, it’s recommended that you speak to an attorney to avoid any potential future complications.

Restricted Cash Flow

Most small businesses cannot stay afloat without a certain amount of cash flow. You can perform tasks timeously, send out invoices, and only receive money after a month—if at all. In the interim, you will be left to address all of your business-related costs like salary payments, infrastructural costs, and personal expenses.

The solution in this case is to meticulously plan and budget your operations to maintain cash flow however you can. An effective way of boosting cash flow is requesting down-payments when you receive orders from clients. This money will allow you to address your expenses and keep money aside for unforeseen costs.

You could also request faster invoice settlement terms, as this will buy you extra time if clients are not prompt payers. Additionally, you could approach your vendors and request that they invoice you after 45, 60, or even 90 days. This is a somewhat unconventional approach, but if you’re in good standing with your vendors, it could help you to loosen your cash flow and keep your small business in the clear.

Tight Marketing Budgets

Even if your business has sufficient cash flow, you may have a tight budget for promoting your products and services.

To remedy this, remember that every entrepreneur deals with budget issues from time to time. You can reduce the frequency of this phenomenon by optimizing your marketing efforts. Spend your advertising cash where it will maximize your ROI and use the remainder for other infrastructural costs and marketing experiments. Don’t take risks with your marketing, rather play it safe and simple as you won’t always recoup your costs.

Worryingly Low-Profit Margins

If you’ve noticed a sudden dip in your once-strong profit margins, you’re not alone. Many small businesses are facing similar issues in 2020—especially those who don’t operate exclusively online.

To begin addressing this problem, you should create a weekly or monthly forecast of your cash flow based on your current financial results. Your forecast should include detailed cash flow estimates, such as invoices paid by clients, and financial outflows like vendor payments, salaries, and rental costs.

In this specific scenario, it’s helpful to bear a worst-case scenario in mind. Develop a pessimistic forecast and assess it against your cash flow. If you’re still generating an income, you should be in the clear. If not, however, you will need to find ways to boost cash inflow and reduce outflow until your profit margins have stabilized.

Debt and Loan Defaults

Defaulting on loans can be devastating for your business and your own financial standing. If you borrowed money before the pandemic struck, you might be struggling to repay it now. The last thing you probably want to do is discuss those debt-related issues with others—but that’s precisely what you need to do.

If you fear that you may default on a loan, immediately contact your lender. Approach them with the facts and figures relevant to your situation, and if possible, calculate how much of your loan you can repay, and where you need leeway. They will often be willing to negotiate reduced rates and lower interest-only payments to assist you temporarily.

Alternatively, if you don’t contact your lenders in good time, you may face the bank demanding immediate repayment in full. If you cannot pay, they can repossess your collateral and sell it off to repay the loan. Rest assured that most lenders will appreciate your honesty about your financial situation. It allows both parties to explore more options for solutions and to find a flexible fix that works for all involved.

The Bottom Line

If your small business is facing financial issues, you’re not alone. A huge percentage of SMEs tackle fiscal fiascos from time to time, and not all of them survive.

Your best approach if you are facing monetary concerns is to be proactive and to tackle problems head-on. Don’t wait until they have spiraled out of control or until a bank representative shows up at your door. There are many ways to ensure that your business operates smoothly and continues to generate a profit, even during difficult times.

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Nina Sharpe is a content champion for various outlets, covering various business topics from finance for startups to small business accounting tips.

Managing Money: How to Reduce Financial Strain on Your Business

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