Financial Challenges Faced By Small Business owners

Research says 80% of the small companies make it through their 1st year with fewer employees. Whereas 70% still operates by the end of the second year. By the time they hit the five-year mark, half of the companies are supposedly thriving in the business. Of those, some small business owners are forced to shut their doors owing to the lack of funds. There are so many issues to be managed within a limited time. To put it straight, there is not enough money coming into the business at this point in most cases, to pay the employees or to cover the operational cost and other expenses. The good news is that each problem comes with a silver lining. Let us have a look at the top financial challenges faced by small businesses and how they beat the odds. 

Inconsistent Cash Flow:

Financial challenges faced by small businesses
Financial challenges faced by small businesses

Cash flow into the business should be a top priority to run the business smoothly. Whether it is a start-up or a business in the market for many years, cash is the king. The majority of the companies struggle with cash flow. Cash flow involves balancing the accounts payable and receivable. A single bad month can make a company lose its stability. Without cash, it’s hard to pay employees, bills and other suppliers. Fortunately, you can implement certain strategies to fix the lack of cash flow:

  • Develop and monitor a cash flow forecast
  • Prepare clear payment terms
  • Invoice periodically
  • Offer payment packages
  • Make easy payment for customers
  • Minimize debtor days
  • Establish cash flow and not profits
  • Start to look at the big picture

Good cash flow is crucial for the success of the business. Hence manage and maintain it accordingly. 

Focus on using a Budget Plan:

If you run a business hoping to pay the bills from the bank, then you will wind up with more financial responsibilities and debt. Creating a solid business plan and realistic budgets would help to keep the business on track. This would be a tool for your business to analyze expenditures and change them quickly as and when it’s needed. Update the budget to make good business decisions. A small business should include these five elements.

  • One-time costs
  • Fixed costs
  • Variable costs
  • A statement on the cash flow
  • Profit margin

Do some savings for unexpected events as well. 

Emergency Expenditures:

Unforeseen expenses can throw off your forecasts and derail the best-laid plans. Surprises come in the name of tax bills. Sometimes, an unexpected breakdown of the machine happens which costs you the repair bills. All these must be anticipated and budgeting should be forecasted. Not to mention the bad debts and opportunity costs. Hence, acquire insurance for emergency purposes and lookout for ways to minimize errors. Always have a cash reserve that helps you through the tough times. 

When it is good to save, put the savings into the account and let it grow over time. Set automatic transfers to your savings account which will be accessible to pull it back. Hence, prepare the budget, monitor it regularly and use it wisely with careful financial planning. 


A small business owner is not spared off from paying hefty taxes. Whether you come under sole proprietor or a partnership you will need to pay taxes for the profits earned for the whole year. Track the expenses and use some as deductions which will eventually reduce your tax liability. Employees have to pay the employment tax on time and be sure to submit the reports and pay taxes to avoid the penalties laid by the government. The same applies to any state and local taxes that are due. Cash management has become difficult. Up to 80% of the small businesses overpay the income taxes every year. Few others underpay and wind up on the wrong side. Both take time, effort and money. Another biggest issue faced by small businesses isn’t the payment of taxes. It is the cost of compliance. This has a larger hit on the small companies. Companies with under $1million revenue ought to bear nearly two-thirds of business compliance costs. Hence, it is important to have proper record keeping and precise accounting for all the cash transactions.

Let’s manage the financial challenges wisely and take our business to the next level. 

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