|Arla Wallace is an accounting professional with over 20 years experience. She spent several years working for both publicly-traded and private entities before founding her own business. Today she partners with small business owners so they can focus on operations while leaving the responsibility of staying on top of accounting tasks to her. She is a Certified Public Accountant (CPA) and a Certified ProAdvisor for Quickbooks Online.|
Financial Concerns for Small Business Owners
Owning a small business can be rewarding. However, there are inherent risks in being a business owner. Small business owners must determine where money will come from to operate from day to day, to meet payroll, and to grow the business. Becoming aware of common financial challenges small business owners face can help you prepare and mitigate this business risk.
Underestimating Startup Costs
Business expenses are often incurred before cash starts flowing into the business. Not knowing what it will cost you to get a business up and running can put tremendous financial pressure on your personal capital investment and even bring your business to a halt. Commonly overlooked expenses include licensing, marketing, and insurance. Depending on what you sell or what services you provide, licenses are sometimes needed at both the Federal and State levels. Research not only industry regulations but also city, county, and state regulations for your business locale. Reaching your initial clientele through marketing and advertising will require an investment whether you choose to outsource this function to a marketing provider or use social media to advertise. The U.S. Small Business Administration recommends spending between 7 to 8 percent of gross revenue for businesses bringing in less than $5 million a year in sales. Adequate insurance coverage is necessary for every small business. Professional liability insurance covers businesses against negligence claims due to harm stemming from mistakes or failure to perform. Property insurance covers equipment and inventory in the event of fire, storm, or theft.
Pricing Products & Services
Setting a price point too high may force customers to go elsewhere while a price point set too low will decrease profits. Therefore, the more information you gather the better when setting prices. A small business owner should be able to identify all costs associated with pricing an item. This includes not only the cost of goods sold but also credit card fees as well as shipping and delivery. Different products may lead to different margins. Generally, slow movers need a higher profit margin while smaller margins can suffice on products with high sales volume. Copying the sales price of a competitor is not a good ideal. This approach does not account for the value your business offers to customers.
Forgetting to Pay Owner’s Salary
You may delay paying yourself a regular salary in the early months of a new business. However, you will need to factor this amount into your overall business financial plan. Business profits along with what you determine to be a fair rate for your work will help you set your salary. In addition, your small business structure will dictate how you pay yourself. Strive to pay yourself enough to live on and budget so there is money left over for the business.
Decreasing financial risk can not only help ensure there is enough capital to start a new business but also help an established business expand product lines or even acquire a new building. Therefore, seek information to better your knowledge so you can make better decisions for your small business.