Starting a small business is not for the faint of heart. But even for the most brazen of entrepreneurs, financial issues can feel paralyzing, especially in today’s tough economy. We advise small business owners every day, and notice certain financial FAQs come up again and again. And we’re here to help.
In order to keep swimming through the shark-infested waters of small business ownership, you’ve got to tackle your money fears head-on. So we’ve compiled five of the most common financial fears our clients share with us on the daily—and how to solve them.
1. How do I raise enough money for my small business?
Raising capital from investors can be a scary task. And choosing to take out a loan? In this economy? Downright terrifying.
Here’s the thing though: You can’t start a business with $0. You’ve got staff to hire, equipment to purchase, and marketing to invest in. You have to start with something!
Figure out exactly what you need to begin. If that number is a little nebulous, consider working with a financial expert to create a business budget plan and proper valuation of your business. You’ll know how much to ask for, where that money will go, and how much equity you’re willing to give up.
With interest rates high, you may want to wait to take out your loan. Don’t do that. (Unless you’re willing to wait a long long time.) Since the Federal Reserve has more interest rate hikes planned for 2022, those loans are only going to get more expensive.
In addition to applying for small business loans, consider submitting to small business grant contests. A few of our favorites:
- FedEx Small Business Grant Contest: Awards $50,000 to three winners per year, and $20,000 to seven winners.
- Arch Grants Startup Competition: Willing to relocate to St. Louis for at least a year? You could win $75,000 of equity-free funding, $25,000 to relocate, with additional funding of up to $100,000.
- Nav’s Small Business Grant: A quarterly grant with a grand prize of $10,000.
“You have to spend money to make money.” If those words immediately make you cringe, we get it. You’ve likely heard something along these lines from every high school acquaintance trying to rope you into a MLM scheme.
Although we don’t advise anyone to join a pyramid scheme, we do agree with this sentiment. (When it’s not referring to laxative teas or essential oils.) You’ve got to establish your small business as one that’s high-value from the beginning, and that takes money.
How you spend that money is up to you, but try to avoid frivolous purchases. Choosing to pass on that $1,000 painting won’t make your office space any less inviting or comfortable for team members! Carefully consider where each dollar is going, and limit purchases to those that are 100% necessary, especially in the beginning.
3. How do I avoid over- or under-charging for my services?
Especially if you’re the new kid on the block, it may be tempting to make your product stand out with cheaper pricing. This is where knowing your value comes in. Even if it feels uncomfortable to do so, you’ve got to protect your margins. Understanding industry standards, your overhead costs, and your specific financial picture is critical.
Overpricing yourself, on the other hand, makes it difficult to acquire clients.
With planning and research, you can find that Goldilocks zone. When you price yourself fairly from the beginning, you’ll avoid extreme price hikes later that will alienate your first customers.
And keep in mind, any necessary changes to your pricing should be gradual. If your prices suddenly jump up all at once, you could turn away the loyal customers you worked so hard to get! Be open and honest with your clients, and keep an eagle eye on inflation and competitor pricing.
4. How do I follow up on unpaid invoices?
You just do it. It’s no fun playing debt collector, but maintaining a steady cash flow is vital for your financial health. Keep a close eye on your records, and make sure you’re collecting payment for any services rendered. A bookkeeper can be especially helpful when you’re looking to stay on top of delinquent payments.
You have to be paid, but you also have to be empathetic. Understand that your clients generally want to pay up—difficulty doing so may be due to financial hardship. If it’s possible for you, work with your clients and offer payment plans that will keep you in business without draining them dry. After all, business is also about maintaining positive relationships.
5. How do I avoid commingling?
Things can get hairy if you start to commingle your personal and business expenses. If you have an LLC, C, or S corporation and your business goes bankrupt, you have a “corporate veil” of protection and are not held personally liable for any debt.
But if you’re getting careless and commingling expenses, you’re putting all of your personal assets on the line. (This one’s an especially ruinous financial mistake to make, so check out our previous blog post on commingling for everything you need to know!)
- How do I survive 2022?
Sounds overdramatic, but it’s a valid question. In the best of times, around a third of new businesses close within their first two years and half close in their first five. In the worst? Well, the last period of extended inflation in the United States led to a 42.2% increase in business bankruptcy filings. Yikes.
With the odds stacked against you, what can you do? Start by reading our recent blog post on inflation, then consult with a team of accountants that’ll help you survive (and thrive!) through 2022 and beyond. Contact KYN Accounting today for the financial expertise you deserve.