We are living through a period of high inflation, at levels that haven’t been seen in decades.
Small business owners are worried about inflation hurting their businesses; a recent survey of small business owners conducted by Wave found that 36% of small business owners are concerned about the impact of inflation on their businesses in the next year.
When prices are surging, small business owners need to get even more strategic about how to manage their business finances. There are ways to manage the impact of inflation on your business. By focusing on a few key elements of money management for small business, you can strengthen your financial foundation.
Let’s take a closer look at how to protect your small business from inflation.
[Check out Smart Hustle Small Business Guides – your “cheat sheet” on marketing, money and more]
Boost Your Cash Reserves (or Available Credit)
Especially during times of inflation, cash is king. If the prices of your business’s supplies are going up, if your business overhead costs are skyrocketing, you need more cash to cover those expenses.
Unfortunately, many small businesses do not have an adequate reserve of emergency cash.
Our survey of small business owners found that 57% of business owners have less than $5,000 of cash set aside for financial crises. For business owners who are solo entrepreneurs (with no employees), this percentage was even higher: 69% have less than $5,000 of cash on hand.
Give yourself peace of mind by bulking up your cash reserves. Redirect some cash flow to emergency savings. Try to save up at least 3 months of business income so you can keep operations going in case of a downturn in revenue.
Get Serious About Business Banking
One of the most important steps to take when starting a business is to open a business bank account that is separate from your personal finances. Our survey found that only about half of small businesses have set up a business bank account.
Thirty-five percent of business owners admit to blurring the lines between their business and personal finances – such as paying for business expenses with a personal credit card, or vice versa.
Opening a business bank account under your business’s legal name and tax ID, is one of the simplest moves you can make to strengthen your business finances.
If you have a business bank account, you can keep better track of your business finances, start to build business credit, and potentially qualify for better rates on small business loans or lines of credit. Separating your business and personal finances can also help you avoid some of the worst-case scenarios of being in business, such as a lawsuit against your personal assets.
Show your customers that you’re a serious entrepreneur. Get a business bank account and enjoy the financial benefits and ease of operations that go with it.
Keep Better Track of Business Expenses
Along with setting up a business bank account, more small business owners need to raise their game on bookkeeping, and keep better track of their business expenses. Findings from our survey revealed that 13% of small business owners told us their worst financial habit was keeping track of receipts in a shoebox or drawer.
Keeping better track of your business expenses and income can help you maximize your tax deductions and have better visibility into your business performance. Especially in times of high inflation, you need to know where your business income is coming from, see where your expenses are surging, and you can’t afford to miss out on a single dollar of tax deductions.
Inflation makes it even more important to run your business the right way, have accurate bookkeeping, and maintain good financial habits. Our survey found that 23% of respondents are planning to use bookkeeping software for the first time this year. Hopefully inflation can serve as extra motivation for you to maximize your tax deductions and know where every dollar is going within your business.
Inflation makes it even more important to run your business the right way, have accurate bookkeeping, and maintain good financial habits.
Increase Your Cash Flow
It’s hard to cut costs during times of inflation when prices are rising rapidly. So be proactive about your top line: increase your cash flow.
One way to boost your cash flow is to get paid faster. Are you suffering from slow-paying clients? Look for better ways to remind clients about payment due dates and past-due invoices, change your payment terms to “Payment Due Upon Receipt,” or offer discounts for immediate payment. The Wave Report on Getting Paid found that 15% more invoices were paid on time when digital payments were enabled on invoices.
Another option is to re-imagine your business model:
- Stop offering low-margin services or products, or those facing too much price competition
- Focus on your most profitable services or products
- Try new channels to reach you customer – partnerships, referrals, social media
- Expand your business into different markets or categories, by diversifying your revenue streams
Our survey found that 48% of business owners said that they would be unable to pivot to additional revenue streams, but among those who could, 54% said they would get a side hustle, and 24% said they would look to digital revenue streams.
Inflation can be painful and worrisome for small business owners, but it is also a moment of opportunity to change your business for the better. Strengthen your fundamentals with better bookkeeping and business banking.
Boost your cash reserves and get access to small business credit if possible. Focus on what your business does best and move forward with a spirit of optimism and agility, and your business can emerge from this challenging time with a stronger foundation for future growth.
By David Axler, VP/GM, Banking and Books, Wave
As the VP/GM of Banking & Books at Wave, David Axler leads the business unit of Wave’s core offering of banking solutions and creating the system of record for small business owners. He has also been responsible for leading business line strategy, growth, business development, and operations. Prior to his role at Wave, David was a Strategic Advisor at Canada-based Influitive, a company providing software to engage customer communities, and was also a Senior Strategy Consultant for Managerial Design at Deloitte.
The post How to Safeguard Your Business During High Inflation appeared first on SmartHustle.com.
Source: Smart Hustle
Republished by Blog Post Promoter