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small business financial challenges

Small Business Financial Challenges: How to Beat Cash Flow Issues, Late Payments and Debt

Small business financial challenges, to an entrepreneur, can feel like the end of the world … or at least, the end of their company.

We won’t sugar-coat it: Money troubles can and do sink small businesses. But they’re also a lot more common than you think — most small businesses take between two and three years to even turn a profit — and you can indeed get around them.

The following are some of the most common small business financial challenges, as well as how to get around them.

5 Common Small Business Financial Challenges

Late Customer Payments

Late payments are, without a doubt, a problem. According to the AP Automation Tracker, a collaboration between PYMNTS and Beanworks, 49% of invoices produced by U.S. businesses eventually become overdue.

Getting paid regularly and in a timely manner is crucial to staving off financial challenges. Among the ways your can ensure your invoices get paid faster: Set payment terms up front, facilitate automatic payments and establish late fees.

Inconsistent or Insufficient Cash Flow

Cash flow is the actual inflow and outflow of cash your business records over time. Simply put: Your company can be theoretically profitable over the whole year, but if you don’t have cash in March to pay off expenses due in March, you’ll still be in hot water.

It’s no wonder that more than 80% of small businesses fail because of cash flow issues.

Fixing late payments is one of several ways to improve your business’s cash flow. Among the other things you can do? Offload some of your work to accounting software, which allows you to both collect on invoices sooner and pay vendors on time — helping you avoid late fees. Negotiate extended payment schedules without penalty. Lock in more favorable prices in advance to keep inventory costs down. And consider leasing larger equipment, which can land you lower monthly payments than traditional financing.

High Debt

There’s nothing wrong with carrying a little small business debt. But naturally, high debt can be problematic because of how much cash you need to both service it and pay it off.

On the front end, you can prevent tacking on too much debt and limiting higher payments by using shorter-term credit for inventory that you know you’ll be able to sell soon, considering lower-rate bank loans versus credit cards and other higher-rate vehicles for longer-term debt, and aggressively shopping rates on any credit you’ll need to access.

If you already have high business debt, all you can do is be strategic about paying it off. Prioritize knocking out higher-rate debt first. Reduce spending where possible until at least a portion (if not all) of your debt is paid off. And set a debt-repayment schedule for yourself to keep you disciplined and on schedule.

Being Unprepared for Emergency Expenses

According to the Federal Emergency Management Agency, roughly a quarter of businesses simply don’t reopen after natural disasters. And there are many other kinds of short-term emergencies that can cripple a company financially.

You can be better prepared by starting a rainy-day fund. Set aside a little cash each month into a high-yield savings account — every little bit of interest helps. Also consider ponying up for insurance plans. That includes business interruption insurance, which can help you keep paying rent, loans, taxes and more while your business is getting back on its feet.

Tax Compliance Issues

Failing to file your business tax return, or sending in an inaccurate filing, is a quick path to audits, penalties and interest — which often times can compound already difficult financial problems.

You can easily avoid this by hiring tax experts who are trained to understand the ins and outs of the U.S. tax code.

However, tax professionals can do much more than keep you compliant. For instance, McManamon & Co.’s tax services include compliance services for businesses, individuals, estates and trusts. We can also tackle payroll taxes, project upcoming tax liabilities, make recommendations to minimize and defer pending liabilities, and more.

If you want to know more about what we can do for you, call us at 440.892.8900 or contact us online today.

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