Tags: small business | cash | finance | strategy

Despite High Optimism, 1 in 5 SMBs Cite Financial Issues as Greatest Concern

Despite High Optimism, 1 in 5 SMBs Cite Financial Issues as Greatest Concern

By Friday, 09 March 2018 04:23 PM Current | Bio | Archive

In a Wells Fargo/Gallup Small Business Index survey released during the first quarter of 2018, small business owners reported their highest level of optimism in 11 years. Their 12-month outlooks for revenue and cash flow were at all-time highs, and their views on capital spending reflected their highest confidence in almost 15 years.

When asked what might upset their optimism, one in five owners pointed to concerns about financial issues such as fiscal stability, operating costs, and access to capital and credit. These worries outpaced their fears about competing in crowded markets and hiring and keeping good workers.

The pairing of confidence about revenue and cash flow with concerns about fiscal strength and access to capital and credit makes sense. You may have a great product or service and a strong market for those offerings, but constraints on people, processes and assets can hold your business back. Real or perceived limits on funding can prevent you from investing in projects or acquiring the resources to beat those constraints.

Business owners can make their optimism actionable by understanding their business needs and financing options to identify present growth constraints and take their business to the next level.

Understanding Business Needs

To identify the constraints holding you back from desired growth, think about your people, your processes and your assets. These three components link to each other, and how you address one may change your needs for the rest.

  • People: How owners approach the people piece of the growth puzzle, mainly whether to hire more workers, will depend on the type of business. But people needs aren't limited to headcount, though, and you should also evaluate whether your existing team has the talents and expertise required to reach the next level.
  • Processes: How you conduct the activity of providing goods or services goes hand in hand with your people needs. Think of each step involved—from identifying new customers to delivering the final product or service—and point out those steps ripest for improvement. Sometimes, entrepreneurs can achieve productivity gains by revising workflows. In other cases, automating a manual task can free up employees to handle more activity. For service businesses, look for ways to make it easier for your people to provide quality service.
  • Assets: You may face physical constraints ranging from access to more inventory, equipment to process your orders and space in which to conduct your work. The issue isn't always about quantity. Sometimes actions like replacing older equipment with a newer version or moving to a more functional workspace can reduce costs or relieve capacity constraints.

Understanding Finances

Business owners should understand how these changes in their needs will affect cash inflows and outflows. This analysis involves more than just calculating how much additional revenue you can bring in and how much your costs will rise to drive that revenue. The timing of those cash flows, such as needing to spend money on additional people or assets well before seeing an improved bottom line, will be a leading driver in the financing you require.

Understanding Funding Options

Armed with the knowledge about your needs and how much cash you require to fund them, you are ready to look at your financing options. While small business owners often look first to either their own pockets or to their family, friends and others for equity financing, debt financing is often an attractive option. Debt financing often requires a lower rate of return than equity, and you don't have to share ownership in your company.

For the debt route, there are many options for the type of financing to pursue and where to go for funding.

There are many types of debt and debt-like tools at your disposal depending on your credit rating, the security you can pledge and how quickly you can repay. Revolving lines of credit can be accessed and repaid over and over as funds are needed. With term loans, you borrow once and pay back over time. These loans may be secured by specific assets—or unsecured and supported only by your overall creditworthiness. You may also consider nontraditional debt-like products. These include merchant cash advances and invoice factoring arrangements where a third party makes a sum of cash available in exchange for a claim on the future collections from a specific stream of cash flows.

Commercial bank loans are still an option for small businesses, especially given the current business climate. However, you should not ignore nontraditional lenders such as credit unions and online lenders. Factors such as your credit rating, the collateral you can put up and how soon you need the money will determine which lending sources best fit your needs.

There are many factors to weigh, but the key to turning your optimism into action is to be proactive. Identify which constraints are holding back your business, understand the financial requirements to remove those constraints and seek the funding to close those gaps.

Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.

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Business owners can make their optimism actionable by understanding their business needs and financing options to identify present growth constraints and take their business to the next level.
small business, cash, finance, strategy
Friday, 09 March 2018 04:23 PM
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