The word “unexpected” can strike fear into the hearts of even the most seasoned business owner. Small businesses in the United States and worldwide have faced the all too familiar theme of unexpected business costs and subsequent closures when they could not pivot quickly enough. If you are facing a sudden expense on your balance sheet this year, or want to avoid becoming a number in the failed business statistics for 2022, now is the time to review your options and take action!
Statistics of FailureRunning a business is already difficult, even in a relatively calm economy and during ‘normal’ circumstances. 20% of businesses started in 2016 failed within their first year, and that statistic only grew as each year passed reaching 49.7% after year five.
The number of touch points where your own business can fail has likely increased due to the onslaught of challenges that have come from COVID-19. With businesses forced to close their doors for extended periods, the way customers interacted with brands and services immediately shifted. While some businesses experienced a huge period of growth due to this shift, many saw irreparable losses and took hits they never saw coming.
COVID-19’s Stretch Into the PresentThe U.S. census bureau recently updated their data pulled from a survey of single business owners who employed 1-500 employees. Of those polled, over 21% said that the pandemic had a large negative effect on their business. A group of nearly 43% of individuals reported that they experienced moderately negative effects. Due to the far-reaching consequences of COVID-19, many businesses reported that their operating budgets either became woefully inadequate or altogether decimated for many who were already in precarious circumstances.
Define the “Unexpected”Even if you beat the odds stacked against you by the world we live in, there are still unexpected costs that can pop up. Whether preventable or not, it’s not uncommon to run into one or more of these problems at any point in the life of your business. We know you haven’t come this far from starting your own business to closing your doors because of an avoidable challenge. Here are some things to look out for when monitoring the success of your venture!
Emergency Funds Aren’t ThereUnexpected costs are inevitable in the course of running a business. Perhaps something breaks, or software updates or new hardware or equipment is required to keep up with the industry. Maybe a natural disaster damages your building or a cyber-attack takes out your customer data leaving you paralyzed until you can get someone in to help. While many things are covered by Small Business Insurance policies, the ability to bounce back is crucial to ensure that your business stays on its feet. If emergency funds aren’t on hand to cover a higher ticket cost, a large bill could come your way that might set your business back for weeks or even months if you’re not prepared.
Neglected Business PlansIn the excitement of starting a new business, it’s easy to look beyond the ‘boring’ details of business plans and move on to the fun of building and growing without looking back. But lofty financial projections paired with neglecting to reevaluate regularly can create the perfect storm for costs to sneak up without warning. It’s recommended that companies – especially younger ones – review their business plan annually to make sure they are on track and that their current numbers and objectives reflect the original goal. Taking the temperature of your business can mean the difference between reaction-based operations and feeling in control of your company’s growth trajectory. Putting the time into extra forethought can prevent unnecessary expenses before they have a chance to materialize.
Sudden Opportunities and GrowthA great entrepreneur is able to make quick decisions, adapt, overcome, and keep moving forward, helping entrepreneurs keep their businesses bulletproof from unexpected costs. Some of those costs could be from unavoidable, negative events, but often opportunities can suddenly come along that require action to enable the growth of your business. A sudden surge in business may require creating and hiring for new roles to handle an influx of customers. As a specific market becomes more competitive, it might be time to try new strategies in social media, content, outbound marketing or all of the above, and hire a growth hacking agency to get ahead of the curve. The sooner your business can act on opportunities, the sooner you can see gains in reputation and increased revenue!
Weigh Your OptionsNo matter what circumstance brings an extra expense your way, knowing where to look for solutions is paramount! The recent onslaught of financial challenges businesses faced recently has prompted a surge in fintech companies. These entities seek to provide much-needed financial services through technology, which means easier and faster access to funds. The type of funding you pursue may depend on the time, amount, and nature of the expense at hand. Here are a few options to look into!
Small Business LoanThe United States Small Business Association (SBA) defines small businesses as dependent on the industry they occupy. ‘Small’ could mean anywhere from 100 to 1500 employees, which means if you are one of the 32.5 million small businesses in the united states, a Small Business Loan could be an option for you! If you know the exact amount needed to cover a large expense, such as a large piece of replacement equipment or furniture for an office remodel, exploring a one-time Microloan loan might be a good call. Other options exist for larger amounts provided all other personal financial options have been used. It’s always best to do some research to see what loan would be best for your situation.
Line of CreditIf a business loan isn’t something you feel comfortable with, or are able to pursue, a faster, and more flexible option available is a business line of credit. This form of a business loan can often be applied for online via fintech entities with a quick turnaround time for approvals and access to funds. Additionally, the funds borrowed only have to be paid back as they are borrowed. Small business loans provide a set amount of money available, much like the limit on a credit card, and each time a pull on that available amount is taken out, repayment is based on the amount used. This is great for a business needing to cover payroll during a slow month, pay for unexpected damages quickly, or keep the cash flow going during slow seasonal businesses. These types of loans are great for larger purchases or expenses that cannot be charged with a credit card.
Credit CardsFor smaller or younger businesses, loans may not be an option. Both business loans and line of credit loans may require the business to have a presence in their space for a certain amount of time, or bring in a set amount of profit annually. To cover routine purchases or smaller unexpected expenses, a business credit card could help build the credit for your company.
A credit card is great for unexpected opportunities as well. Perhaps there is a great conference happening across the country, and the only way you can attend is to purchase tickets and cover travel expenses with a credit card. Would you like to experiment with software or a new tool to help keep your business current? Pay for memberships and subscriptions without having to go through a loan application process.
Beat It Before You Meet ItIf you have scrambled to cover expenses in the past, no doubt you want to avoid the feeling of panic that quickly takes over after realizing you don’t have enough money! Planning as much as possible won’t cover every possibility that can come up – who would have thought a few years ago that we would be going through a global pandemic? But taking some steps to set up financial firewalls can keep fear of the future at bay.
Keep Your Budget RealisticOverspending on unnecessary extras or uneven distribution of your operating budget can mean little is left over to have in reserve for emergencies. List out expenses that could come about due to growth. Review past financials to find patterns when you may need to rely on having a line of credit funds handy. Are you constantly using a credit card to purchase everyday items? Maybe it’s time to reallocate funds where they can be better used.
Grow to Thrive, Not SurviveDuring periods of explosive growth or uncontrollable events, businesses often adopt reactive business strategies that help them keep up with demand. However, these strategies aren’t best for building the sustainable trust and brand awareness that helps keep your business thriving instead of on life-support. If reactive policies are left in place, profits and stability can cap out, preventing the changes and flexibility needed to pivot. Gather a growth team tasked with finding ways to grow flexibly, with more stability and profitability.
Don’t PanicFledgling businesses and those still attempting to recover from the pandemic may have exhausted cash reserves, but some research and evaluation of your needs both now and in anticipation of future needs will help your business thrive for years to come. If or when your business comes up against financial costs unexpectedly, remember that the options to find funding when you need it are out there!