Four Strategies for Small Business Owners to Prepare for Every Stage of the Business Cycle
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The ability of small business owners to exist is once again being threatened by rising expenses, continued supply chain problems, and deteriorating market circumstances. The environment of today may be historically significant in and of itself, but if there is one thing we can count on, it is the inevitable nature of the business cycle.
Future prosperity may depend on how well you prepare for emergencies and inevitable downturns like the one that will come next. Although the pandemic showed that having emergency funds is crucial for weathering the ups and downs of company, having a larger financial safety net wouldn't harm. The four methods listed below might give you peace of mind now and help your business succeed and survive in the long run.
The Post-Epidemic Economy: Here's How Small Businesses Can Survive
1. Increase your emergency money by taking these quick and easy actions.
Start small: No amount saved is too modest; begin by establishing an attainable savings goal and then gradually raise or lower it as you go along to enable you to develop a more strategic long-term strategy.
Separate your checking and savings accounts: Out of sight, out of mind: Using a separate savings account will help you make sure you won't use the money until you need to, while also allowing you to collect interest on your money. The yearly percentage yield should be higher than the national average of 0.10% (FDIC).
Create a recurring automated transfer to a different, high-yield savings account to automate your savings. Additionally, you can program a certain revenue stream to deposit funds straight into the account. You can configure your POS system, for instance, to set aside 5% of daily cash revenue.
2. While maintaining adherence to a comprehensive financial strategy, adjust your saving practices and business objectives when market conditions change.
Review your short-term objectives and savings plans: You may stay on pace for achieving longer-term business objectives and success by reviewing your short-term targets and savings plans. Increase your savings contribution when the economy and business are booming in preparation for a rainy day. In more challenging times, compare your present monthly savings to what you can really afford to save.
Consider the price of products and services: To obtain competitive pricing, do this by investigating different merchant service providers. Get official quotations from a couple of them before deciding on the most affordable choice. Additionally frequently, rivals will provide incentives for you to switch merchants (such as waiving certain fees). Consider, for instance, comparing the provider of your point-of-sale terminal to alternative offers once a year.
When evaluating operating costs, start by reevaluating the fees you are paying to providers of payroll or benefits services. You might also think about haggling over your lease terms with your landlord. For instance, committing to a longer lease period can result in more affordable prices. Asking your service providers what they will do to keep your business doesn't hurt, even if it isn't time to renew.
Related Article: 7 Ingenious Ways to Save Money in Your Small Business
3. Ascertain the amount of money required for your emergency fund and what would qualify as a "emergency"
It's crucial to first estimate the amount of the fund you'll require in case of an emergency. Most company consultants advise setting aside at least 3 to 6 months' worth of operational costs as an emergency fund. Here are a few things to think about:
What does your emergency fund now contain? How long would that last in an emergency to pay running costs?
How much working capital would be required to keep your company functioning if it couldn't operate for a month?
While figuring out how much you require is crucial, don't allow that stop you from beginning to save. The most crucial step is to simply begin. If necessary, create a plan afterward.
Identify any circumstances that might force you to use your emergency money next. If you decide it's time, think about the consequences of not using your emergency money. Before using up your emergency cash, are there any other financial options you may use? Before making any significant withdrawals from your savings, it's advisable to get counsel from financial experts and make sure all other possibilities have been explored.
Related Article: What Qualifies as a Financial Emergency?
4. Determine the best form of finance for your needs and business and get it.
Nonbank Lenders: Compared to traditional lenders, nonbank lenders frequently have less stringent lending requirements for small enterprises and can provide cash more rapidly. Most clients receive their loans from lenders like Funding Circle US in less than five days. Through a marketplace, Funding Circle US also links business owners with a variety of additional lenders, enabling them to find the best funding choices to support the expansion and scaling of their enterprises.
Discover microloans offered by Community Development Financial Institutions (CDFIs). You can learn more about your alternatives, including loans designed especially for underserved groups like women and minority business owners, by contacting business resource centers in your area, the local SBA office, your Chamber of Commerce, or your local economic development office.
Before an emergency arises, think about requesting a company line of credit; even if you don't need it, it will be available. Establishing business credit through the opening of a credit card can also aid with cash flow or short-term surprise spending. However, the objective should be to pay off balances in full each month as a best practice in a high-interest rate situation.
There are steps small business owners can do to better position themselves to survive the next economic downturn and all other phases of the business cycle as they navigate historic market obstacles once more. A pro-active, continuing, and intentional strategy to saving can assist business owners in putting their companies in a position to weather the unexpected and thrive.
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